Cost-of-living adjustments are a critical part of Social Security. COLAs, as they're often called, help stop seniors from losing buying power. Since prices increase over time because of inflation, if Social Security benefits stayed the same after claiming them, retirees would be able to buy much less as time goes on.
The COLA isn't the same amount each year, though. It's calculated using a specific formula that results in major variations in the annual benefits bump. For example, the COLA retirees received in 2026 totaled 2.8% -- and next year, the raise is likely to be even higher. Here's why.
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Retirees could be on track for a 3.2% COLA in 2027
In 2027, retirees may get the biggest benefits increase since 2024.
Specifically, early estimates show that the Social Security COLA is on track to come in at 3.2% next year. That's based on an estimate from Mary Johnson, an independent Social Security and Medicare policy analyst.
Johnson's prediction has changed significantly in a short period. In March, Johnson had forecast just a 1.7% increase in Social Security benefits next year.
March Consumer Price Index (CPI) data is the reason for the changed forecast. Social Security benefits are based on average changes in the CPI for Urban Wage Earners and Clerical Workers, or CPI-W, during the third quarter of the year, so reviewing CPI data throughout the year provides insight into what the raise will be.
The March data showed that inflation had surged to the highest level in two years, in large part because of energy-price increases driven by global conflicts.
While we won't know the exact figures until all of the third-quarter data has come out in October, these early predictions give seniors reason to believe their checks will get a lot bigger in the new year.
A large Social Security COLA isn't a good thing for retirees
While news of a large raise may seem like cause for optimism for retirees, the opposite is true. COLAs aren't a raise -- they're an inflation adjustment.
COLA estimates increase when prices are rising rapidly, and rapid price increases aren't good for older Americans who typically also rely on money from retirement plans to pay the bills. If your 401(k) or IRA is invested pretty conservatively and inflation surges, you could lose buying power from these accounts.
The good news is, there's still time for things to turn around, and the large COLA may not actually pan out. Seniors should likely hope for this outcome, as it would mean they aren't facing big price increases that could hurt their finances in the long run.
