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Social Security COLA Predictions Rise as Inflation Hits a 3-Year High

By Pete Grieve MONEY RESEARCH COLLECTIVE

The cost-of-living adjustment is announced every year in October, so this is just a preliminary estimate.

Money; illustration AI-generated using Claude

Social Security recipients are on track for an increased cost-of-living adjustment (COLA) to their benefits next year, forecasters said Wednesday, as inflation soars above 4%.

The Senior Citizens League now predicts a 3.8% Social Security COLA for 2027, which would be a 1-percentage-point uptick from this year’s 2.8% adjustment.

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Just two months ago, the group was only forecasting a 3.3% COLA. However, the Iran war’s pressure on oil and gas prices has pushed overall inflation to the highest level since April 2023, which means beneficiaries will need a bigger boost to their benefits next year.

The COLA is supposed to ensure that the more than 75 million Americans who receive Social Security payments or Supplemental Security Income do not lose purchasing power as the value of the dollar declines.

If The Senior Citizens League’s forecast is correct, the average increase in benefits due to the 2027 COLA would be about $77. That would lift the average Social Security benefit from $2,026 to $2,103.

The organization’s latest projection is driven by May’s hot inflation numbers. The consumer price index (CPI) report, released by the Bureau of Labor Statistics on Wednesday, showed an annual inflation rate of 4.2% in May, up from 3.8% in April. Energy prices are the main culprit: Gas prices surged 40.5% in the past year and airfares have spiked 26.7%, according to the CPI data. (A slightly different index, the CPI-W, is the crux of the COLA calculation.)

COLA forecasts this time of year from The Senior Citizens League and others, like independent analyst Mary Johnson — who predicts a 4.7% 2027 COLA — are preliminary calls based on limited data.

The COLA, which is announced every year in October, uses a calculation that averages together the CPI-W for July, August and September. That means the first piece of the equation will still not be available for a couple of months — and it’s difficult to predict how much Americans will be paying for gas later in the summer. At $4.15 per gallon, average gas prices are down more than 40 cents since peaking in May.

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Core inflation, which excludes volatile energy prices, was more moderate at 2.9% in May, up 0.1 percentage points from the previous month’s 2.8% mark. Analysts see this as a good sign.

“We do not yet see evidence that higher energy costs are meaningfully feeding through into broader core inflation,” Gargi Chaudhuri, chief investment and portfolio strategist at BlackRock, said in a note Wednesday.

Still, Johnson says the next seven months will be challenging for older adults as they face higher costs while waiting for the COLA increase, which won’t affect Social Security checks until late December at the earliest. Recent inflation is “especially difficult for low-income and older Americans living on fixed incomes,” Johnson says, adding that consumers are “spending more at the supermarket but bringing home less every trip.”

Americans are also on edge about the looming Social Security funding shortfall. On Tuesday, a new government report found that the program’s trust funds could be depleted as soon as 2034, requiring a 17% benefit cut unless Congress takes action.

Last week, Treasury Secretary Scott Bessent was pressed by Sen. Bill Cassidy, R-La., on the administration’s plan to address Social Security insolvency during Senate Finance Committee testimony. Bessent said that “we inherited a mess” and pledged that “we are going to guarantee that the benefits remain as they are.”

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Pete Grieve

Pete Grieve is a New York-based reporter who covers personal finance news. At Money, Pete reports stories that affect Americans’ wallets on topics including insurance, autos, housing, credit cards, retirement and taxes. He studied political science and photography at the University of Chicago, where he was editor-in-chief of The Chicago Maroon, the student newspaper. Pete began his career as a professional journalist in 2019. Prior to joining Money, he was a health reporter for Spectrum News based in Columbus, Ohio, where he wrote digital stories and appeared on TV to provide coverage to a statewide audience. He has also written for the San Francisco Chronicle, the Chicago Sun-Times and CNN Politics. Pete received extensive journalism training through Report for America, a nonprofit organization that places reporters in newsrooms to cover underreported issues and communities, and has attended journalism conferences from organizations including Investigative Reporters and Editors (IRE) and the Society for Advancing Business Editing and Writing. He has discussed his reporting in interviews with outlets including the Columbia Journalism Review, This Morning With Gordon Deal and WBEZ (Chicago's NPR station). He’s been a panelist at the Chicago Headline Club’s FOIA Fest and he received the Institute on Political Journalism’s $2,500 Award for Excellence in Collegiate Reporting in 2017. An essay he wrote for Grey City magazine was later published in a 2020 book, Remembering J. Z. Smith: A Career and its Consequence.