If you're someone who collects Social Security, you may be pretty dependent on those monthly benefits to make ends meet in retirement. And you may also find yourself hoping for a generous cost-of-living adjustment (COLA) each year.
This year, Social Security benefits were eligible for a 2.8% COLA. But many seniors found themselves disappointed by that raise. And if you were one of them, here's more bad news. You may be in for a repeat situation in 2027.
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What initial 2027 COLA estimates look like
Social Security COLAs are tied directly to inflation. Based on recent data, the Senior Citizens League, an advocacy group, put out a projection last month calling for a 2.5% COLA for 2027.
That projection, however, could wiggle substantially in the coming months, so you probably don't want to put too much stock in it. Social Security COLAs are actually based on third quarter inflation changes, and we're still months away from there.
But regardless of what happens with inflation this year, history tells us that 2027's Social Security COLA is more likely than not to disappoint. And that's because those COLAs have long failed to actually keep pace with inflation due to a big flaw in how they're calculated.
Social Security COLAs are based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But the CPI-W does not do a good job of capturing the costs older Americans face.
Healthcare, for example, has outpaced broad inflation in recent years, and it tends to be a huge expense for Social Security recipients. But the CPI-W doesn't account well for that, leading to COLAs that are less effective.
Have realistic expectations
Even if Social Security COLA projections for 2027 increase in the coming months, there's a good chance next year's raise will still fall flat. The best thing to do in light of that is look closely at your retirement budget and see if there's room to make changes that give you more financial wiggle room.
It also pays to see if there are steps you can take to boost your retirement income. Working is an option worth considering. And if you have a larger home, you may be able to rent out a room or finished basement for extra money.
The Social Security Administration generally announces COLAs in October. So we're still a ways off from knowing what 2027's raise is officially.
You can track updates by the Senior Citizens League and other sources in the coming months, but that may not be a good use of your time or mental energy. A better bet may be to focus on ways to improve your financial picture in case 2027's COLA disappoints just as previous COLAs have done.
