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Of the nearly 55 million people who receive Social Security retirement benefits, many rely on it for most or all of their retirement income. That's why the announcement of the annual cost-of-living adjustment (COLA) is a big deal. It lets Social Security recipients start planning their budgets for the coming year.
Beginning in 2027, recipients will receive a 3.6% bump to their benefits, one of the larger COLAs in the past 30 years. Here's how it translates to dollars for different current monthly benefit amounts:
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In August, the average monthly benefit was $2,087, so a 3.6% COLA would pay out around an extra $75 per month.
The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It's a subset of the CPI-U, the U.S.'s main inflation index, and covers around 30% of the U.S. population.
To set the COLA, Social Security averages the CPI-W for the current year, compares it to the previous year's average, and then sets the COLA as the percentage increase, rounded to the nearest one-tenth of one percent.
For example, the CPI-W average in 2025 was 317.265, which was 2.76% higher than the 2024 average of 308.729. That gave us a 2.8% COLA for 2026.
The CPI-W average this year was 328.746, which is 3.62% higher than 2025's average, and how we landed at the 3.6% COLA for 2027.
The 3.6% COLA for next year is one of the highest in recent years. In 2022 and 2023, the COLAs were 5.9% and 8.7%, respectively. But before then, you'd have to go back to 2012, when it was also 3.6%. Here are the past 20 COLAs:
On the one hand, having a nice benefits boost to look forward to next year is a relief. However, that doesn't help Social Security recipients with the inflation they're facing right now. The 2027 COLA is high because inflation is high. Unfortunately, you don't get one without the other.
Annual COLAs, while appreciated, haven't fully offset inflation over the years, and recipients have consistently lost purchasing power. Every $100 in benefits in 2016 would buy around $86.30 worth of items today. Needless to say, that isn't ideal.
There isn't a quick solution, aside from Congress issuing a one-time adjustment, but I wouldn't hold your breath, especially with the program already operating at a deficit. For now, recipients should budget accordingly, expecting the COLA might not stretch as far as they'd like.
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Here's What a $1,500, $2,000, and $3,000 Social Security Check Will Become After the 2027 Cost-of-Living Adjustment (COLA) was originally published by The Motley Fool
