The annual Social Security cost-of-living adjustment (COLA) is one of the most anticipated announcements in the Social Security world. The official COLA won't be announced until Oct. 14, but the three months leading up to October are the most important months of the year for the COLA.
July is the first month when inflation numbers will impact the COLA for the upcoming year. Next year's COLA is shaping up to be larger than usual, especially with current ongoing geopolitical events.
How Social Security calculates the annual COLA
To determine the COLA, Social Security looks at the CPI-W average from the third quarter (July, August, and September), compares it to the third-quarter average from last year, and sets the COLA as the percentage increase, rounded up to the nearest tenth of 1%.
For instance, the 2025 CPI-W average was 2.76% higher than the 2024 average, giving us the 2.8% COLA for 2026. The 2024 CPI-W average was 2.49% higher than the 2023 average, resulting in the 2.5% COLA in 2025.
If the CPI-W average during the current year is the same as or less than the previous year, there's no COLA for the upcoming year. Luckily, benefits are never reduced due to a lower CPI-W average.
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The 2027 COLA will likely be higher than usual
Inflation cooled from May to June, but it's still up from last year. In June, the CPI-W was 3.5% higher than last year, and although June's numbers don't affect the COLA, they can give an idea of what kind of inflation we're possibly looking at from here.
However, a new (but recurring) development in July is President Donald Trump's reimposition of the naval blockade on Iran, which instantly increased oil prices. Energy prices, such as oil and gasoline, carry significant weight in calculating CPI-W data, so if oil prices remain high (or increase), the anticipated higher-than-average COLA could be even higher.
In June, gasoline (all types) and fuel oil prices were up 27.1% and 26.7% year over year, respectively. I can't predict July's prices, but I'd imagine they're going to come in noticeably higher than last year.
What is the 2027 COLA projection?
Again, the official figure won't be released until October, but some organizations put out COLA estimates based on various economic metrics. One is The Senior Citizens League (TSCL), a nonpartisan senior advocacy group.
At the time of writing, TSCL projects that the 2027 COLA will be 3.8%. It noted that this would be the 17th-highest COLA since 1977, when Social Security first began using the CPI-W to set the COLA.
A high COLA is always appreciated, but it doesn't always fully offset the inflation retirees face. Unfortunately, retirees should plan for their Social Security benefits to lose purchasing power over the years.
