It would be hard to argue against the Social Security program being one of the U.S.'s premier and most-needed social programs. As of the end of June, over 54.6 million people were receiving Social Security retired workers' benefits, and millions of them would be flirting with poverty without them.
The Social Security program is complex with many different working parts, and many of those parts tend to change frequently. Some changes are unwelcome, but other changes are typically embraced by retirees. A change that falls into the latter category is the annual cost-of-living adjustment (COLA).
The Social Security Administration (SSA) won't release the official 2027 COLA until Oct. 14, but early estimates from select organizations have been released. If the COLA is near the current estimates, it'll check off a few historic milestones.
Image source: Getty Images.
How the annual COLA is calculated
The annual COLA is set by looking at changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It's an inflation measure released monthly by the Bureau of Labor Statistics that looks at price changes in goods and services like housing, transportation, food, energy, and medical care.
The SSA follows a three-step process to set the COLA:
- Average the CPI-W numbers from July, August, and September (the third quarter) of the current year.
- Compare the current year's average to the previous year's average.
- Set the upcoming COLA as the percentage difference, rounded up to the nearest tenth of a percent. If the average decreases from the previous year, benefits remain the same, but they won't be reduced.
Let's take a look at this year's COLA as an example. The CPI-W Q3 average in 2025 was 317.265; the average in 2024 was 308.729. That 2.76% difference was rounded up to the 2.8% boost that Social Security recipients received this year.
What is the estimated 2027 COLA?
There are a few organizations that put out COLA estimates, but one of the more closely watched sources is The Senior Citizens League (TSCL), a bipartisan senior advocacy group. Its latest estimates predict that the 2027 COLA will be 3.8%. If we assume (with an emphasis on assume) that the COLA ends up being 3.8%, here are a few milestones it would achieve:
- Third-highest in the past decade
- Higher than the average COLA since 1977 (when it first started using CPI-W data)
- 17th-highest COLA of all time
For more perspective, here are the 10 previous COLAs before this year:
| Year | Social Security COLA |
|---|---|
| 2025 | 2.5% |
| 2024 | 3.2% |
| 2023 | 8.7% |
| 2022 | 5.9% |
| 2021 | 1.3% |
| 2020 | 1.6% |
| 2019 | 2.8% |
| 2018 | 2% |
| 2017 | 0.3% |
| 2016 | 0% |
Data source: Social Security Administration.
What would cause a higher-than-usual COLA?
A bigger COLA could be traced back to how much energy prices -- which are weighed heavily in CPI-W calculations -- have increased this year due to the conflict in the Middle East. In June, here is how much certain energy measures increased year over year:
- All energy: 15.7%
- Energy commodities: 27.1%
- Gasoline (all types): 26.7%
- Fuel oil: 42.9%
- Energy services: 3.9%
- Electricity: 4%
- Utility gas service: 3%
Granted, June data won't be used in COLA calculations, but it provides a bit of insight into how much energy-related prices have increased. With the ongoing conflict in the Middle East, inflation is likely to continue.
The elephant in the room?
Social Security recipients will tell you that they appreciate any boost to benefits, but there's one looming issue: Social Security benefits continue to lose their purchasing power. According to TSCL, Social Security benefits have lost 13.7% of their purchasing power since 2016. That means $1,000 in benefits then would only buy around $863 worth of items today.
Needless to say, that isn't ideal, but that seems to be the trend. The best thing Social Security recipients can do is budget with the expectation that their benefits won't sustain the same purchasing power.
