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Inflation rose sharply in March, led by rising fuel prices.
If that continues, 2027’s Social Security COLA could outpace 2026’s.
It’s too soon to know whether higher gas prices will drive up next year’s COLA or not.
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If you’ve been paying attention at the pump, you may be aware that gas prices are soaring these days thanks to the Iran conflict.
But higher gas prices aren’t just a problem for people who drive a lot. They’re an issue broadly.
When gas prices rise, the cost of goods overall tends to increase. It costs businesses more to transport goods when fuel prices are elevated, and those extra costs tend to get passed along to consumers.
In March, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.3% on an annual basis. On a monthly basis, the CPI rose 1.3%. And that could have a huge impact on next year’s Social Security cost-of-living adjustment (COLA).
The purpose of Social Security COLAs is to help seniors maintain their buying power as inflation drives prices upward. Those COLAs are based on changes to the CPI-W.
That may seem counterintuitive at first, since the CPI-W doesn’t measure costs that are specific to retirees. But that’s how the system works.
Meanwhile, based on current inflation data, the nonpartisan Senior Citizens League is now expecting a 2.8% COLA for Social Security in 2026 — the same COLA that arrived this year. If that were to happen, the average Social Security recipient would likely be in line for a roughly $57 monthly raise, not accounting for higher Medicare Part B costs.
Furthermore, if gas prices stay high and overall prices continue to climb, seniors on Social Security could be looking at an even larger COLA in 2027 than 2.8%.
Social Security COLAs are based on third quarter changes to the CPI-W. As such, March’s reading may not carry all that much weight.
If the conflict overseas settles down and gas prices decrease fairly quickly, next year’s Social Security COLA may not be as high. So seniors shouldn’t bank on a certain number just yet. However, if those higher prices continue, it could lead to a larger 2027 raise.
That said, it’s also important to recognize that a larger Social Security COLA doesn’t necessarily translate to more buying power. The whole purpose of those COLAs is to maintain buying power as inflation drives costs up — not gain buying power.
To put it another way, even if next year’s Social Security COLA comes in higher than 3%, in exchange, it will mean that prices have gone up substantially. So seniors on Social Security won’t gain anything in that scenario. The best-case situation is that they won’t lose buying power.
All told, it’s best not to rely too heavily on Social Security COLAs in general. They tend to do a poor job of helping seniors keep up with their costs.
The Senior Citizens League reports that between 2010 and 2014, Social Security recipients lost 20% of their buying power due to insufficient COLAs. A better idea is to save well for retirement to supplement those monthly benefits. A robust portfolio may stand a much better chance of matching or beating inflation than the raises Social Security benefits are eligible for every year.
In fact, let’s say you retire with a $1 million portfolio that’s 40% bonds and 60% stocks. A portfolio that size might allow your money to grow anywhere from 6% to 9% year to year, on average. That’s better than what Social Security COLAs typically allow for, and it could put you in a great position to retire comfortably.
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