Social Security benefits are a key component of millions of Americans’ retirement
plans, and current projections indicate those payments could increase in
2027.
Analysts have upped their predictions for the 2027 Social Security
cost-of-living adjustment (COLA), suggesting the COLA could increase more than expected. While still just projections at this time, the potential benefit increase
may seem positive, but it’s actually not a reason to celebrate.
Here’s what you need to know about the 2027 COLA and how inflation is affecting
retirees.
The newest COLA projections
After the inflation rate reached the highest level in three years in May,
independent Social Security and Medicare policy analyst Mary Johnson revised her
COLA estimate to 4.7%. In May, Johnson predicted a 4.2% COLA.
Johnson noted that it’s likely the COLA will climb even more as additional data,
particularly data on gasoline prices, continues to come in.
In contrast to Johnson’s higher COLA projection, the Senior Citizens League
lowered its 3.9% May COLA estimate to 3.8% in June. The Senior Citizens League
didn’t specify why the projection declined, but every analyst uses their own
formula to make their calculations, so the figures may be a result of a
variation in formulas.
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How the COLA is calculated
The COLA helps ensure that Social Security and Supplemental Security Income
benefits are appropriately adjusted to keep up with inflation.
The COLA is calculated based on data from the Consumer Price Index for Urban
Wage Earners and Clerical Workers (CPI-W), which is calculated monthly by the
Bureau of Labor Statistics. Only data from the third quarter of the year
applies, and it’s compared to data from the third quarter of the last year in
which a COLA became effective. If the current year’s data is higher, a COLA is
applied and benefits are increased by that percentage during the coming year.
In May, the CPI-W rose by 0.7% for a 4.4% increase over the past 12 months. The
final, official COLA won’t be announced until this October.
Do COLAs actually keep up with inflation
The news of a larger Social Security benefit might seem like reason to
celebrate, but a COLA reflects greater inflation, not an actual raise in
benefits. And although the COLA is designed to ensure that benefits keep up with
climbing inflation, that isn’t always the case.
In 2026, a 2.8% COLA was applied to Social Security and Supplemental Security
Income benefits, and the average $2,000 benefit increased by about $56. However,
Johnson explains that for benefits to keep up with inflation in 2026, they would
actually need to be increased by about $94 per month, and the adjustment fell
short of that.
The potential effects of Medicare on the COLA
Medicare price increases could erode any increased benefits provided by the
COLA. Medicare Part B premiums increased 5.9%, 5.9%, and 9.7% in the past three
years.
Such premium increases may partially or fully offset the COLA. For
example, in 2026, the COLA added an average of $56 in Social Security benefits
per month for retirees, but the Medicare Part B price increase consumed 32% of
the COLA, leaving retirees with just a $38 increase.
Medicare Part B premiums may rise again in 2027. Surging oil prices increase
energy costs, which drive up health care expenses like transportation and
facility operations. Tariffs have also increased the price of medical supplies.
A March 2026 congressional report also found that, during the past decade,
overpayments to Medicare Advantage plans contributed $82 billion to Medicare
Part B costs. Official Part B premium costs for 2027 should be released this
November.
Main inflation drivers affecting COLA estimates
Projections for the 2027 COLA are volatile because the inflation drivers behind
those estimates also fluctuate. Energy prices have surged dramatically and
accounted for 40% of the inflation increase in April. As energy prices soar, so
do other expenses, including airfare, travel, and even the cost of consumer
goods.
The BLS reported that the index for energy increased 10.9% in March, 3.8% in
April, and 3.9% in May, and that has a significant impact on inflation and the
overall economy. As inflation continues to grow, analysts continue to revise
their COLA projections, and those projections get higher and higher. That said,
those projections may change and decline if the economy stabilizes and inflation
decreases.
Bottom line
In a 2024 analysis, the Senior Citizens League reports that the purchasing power
of Social Security income has declined by 20% since 2010. A higher COLA is
welcome, but it doesn’t reverse the long-term trend of the fact that Social
Security benefits don’t go as far, and retirees are forced to get by with less
buying power.
If you or a loved one depends on, or will soon depend on Social Security benefits,
watch for the official October announcement of the 2027 COLA. Factor the net
check, not the headline percentage, into your retirement plan, and
keep in mind that extra costs, like higher Medicare Part B costs, might eat into
those extra funds.
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Author Details
Paige Cerulli
Paige Cerulli is a writer for FinanceBuzz with more than 15 years of experience covering personal finance. She focuses on trending financial topics and helps readers make sense of everyday money decisions to more timely topics like tax refunds and how to make the most of that extra cash.
