Editor's note: This article has been corrected. The headline PCE estimate for Q4 2025 from the Federal Reserve Bank of Philadelphia was 2.9%.
Each year, retirees who receive Social Security benefits also receive a cost-of-living adjustment (COLA) to those benefits. The goal of the COLA is to maintain the purchasing power of Social Security benefits, largely as inflation continues to rise.
Last October, the Social Security Administration (SSA) announced that the COLA in 2026 would be 2.8%, which is larger than last year's, but smaller than in each of the three years before that.
Although it's still quite early in 2026, astute retirees can already take a look at what could happen to the COLA in 2027. Additionally, here's what history suggests could come next year for Social Security's COLA.
What the data says
The SSA calculates the COLA using a formula set by law, so it's not an arbitrary process. Because the COLA's purpose is to maintain purchasing power, the following year's COLA is largely based on inflation data.
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Specifically, the SSA uses data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the Consumer Price Index for All Urban Consumers (CPI-U), which the CPI the market monitors closely to gauge inflation. The SSA examines the change in the average CPI-W for July, August, and September in the third quarter of the year, and compares it with the same period in the prior year. The percentage difference determines the following year's COLA.
What all this means is that if you have a good idea of where inflation will be toward the end of the year, you'll have a good idea of the following year's COLA. Estimates among market strategists and economists differ somewhat because there are still many uncertainties, such as whether President Donald Trump's tariffs from last year have fully passed through to consumer prices.
Each quarter, the Federal Reserve Bank of Philadelphia surveys 33 professional forecasters who make estimates for several big economic indicators, including the CPI, gross domestic product, and unemployment. In the fourth-quarter survey from last November, forecasters projected the headline year-over-year CPI number to come in at 2.9%.
The nonpartisan Senior Citizens League (SCL) also has a tool called COLA Watch that projects next year's COLA. The SCL's current prediction for 2027 is a 2.5% COLA, slightly lower than this year's figure.
What history tells us about next year's COLA
What retirees should understand about COLAs is that they can be a double-edged sword. If inflation rises, so too will the Social Security COLA, increasing benefits the following year. But this also means consumer prices are rising, and the cost of living will get more expensive. The same goes for lower COLAs: Smaller rises mean a smaller increase in benefits, but also that the cost of living won't be as expensive.
However, the SCL has also conducted numerous studies on the purchasing power of benefits and found that COLAs have failed to keep pace with inflation for much of this century. In its 2024 Loss of Buying Power study, the SCL found that average Social Security benefits in 2024 were worth only about $0.80 on the dollar compared to 2010, meaning retirees had lost about 20% of their purchasing power.
According to the SCL, over this period, COLAs have trailed the annual rate of inflation in eight of the 15 years since 2010, which has a compounding effect. This could be due to a timing issue, among other reasons, but it adds up over time, which is why the SCL estimates a 20% loss of purchasing power. So, if history is any indication, retirees will likely keep losing purchasing power unless Congress changes the way the COLA formula is calculated.
While most acknowledge that Social Security will need changes sooner rather than later, it is a delicate legislative issue that most lawmakers seem to want to kick the can down the road.
