New Social Security COLA estimates released after fresh inflation data

Social security recipients are on track to receive a larger cost-of-living adjustment in 2027, with early estimates coming in between 3.2% and 3.6%, according to a new analysis released after fresh inflation data. 

The Federal Bureau of Labor Statistics (BLS) and Federal Reserve projects based the estimate on their consumer price data. The BLS reported the inflation gauge used to calculate the COLA increase.  

What we know:

AARP projects a 3.5% COLA, its first forecast issued before the government publishes third quarter inflation figures. The group bases their estimate on July’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which rises 3.4% from the previous year. 

What's next:

The final COLA is calculated from CPI-W readings for July, August and September and is expected to be released October 14.  

By the numbers:

If AARP’s estimates hold up, the average retired worker benefit, about $2,086 in July, would increase about $73 a month starting in January. Disabled workers and surviving spouses would see increases to their average payments as well. 

The other side:

The Committee for a Responsible Federal Budget expects a 3.2% increase adjustment, citing the flat CPI-W movement in July. The Senior Citizens League estimates a 3.6% increase, noting that swings earlier in the year complicate forecasting. 

Big picture view:

AARP officials say early guidance helps older adults plan around the rising cost of groceries, energy, housing and health care. However, some analysts caution that energy prices and other volatile categories could shift the final number. 

What they're saying:

AARP Public Policy Institute Vice President Rich Johnson says many older Americans rely on Social Security for most of their income and the COLA forecast can be used to help them map out their finances for next year. 

"Family budgets have been under increasing pressure because of rising prices," Johnson said. "The sooner that we can give them reliable information as to how much their benefits might (increase next year), the sooner they can start planning." 

Inside Social Security COLA

Dig deeper:

Social Security COLA stands for Cost-of-Living Adjustment. It is an annual increase made to Social Security to help purchasing power keep up with inflation. 

Social Security COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, which tracks monthly changes in the cost of goods and services such as food, energy and medical care. 

The Social Security Administration compares the average CPI-W for July, August and September of the current year with the average from the same three months of the previous year. The percentage increase becomes the COLA for the following year.

 

Economy