Social Security COLA is likely to increase next year. So could the pressure to change it.
New inflation data suggests seniors will see heftier Social Security checks next year.
The annual cost-of-living adjustment, or COLA, is projected by AARP to be 3.6%, increasing the average retiree’s monthly check by around $75. This year’s COLA of 2.8% bumped up the average benefit by $56.
If this projection sticks, the 2027 COLA will be the highest in four years — but still not enough for millions of retirees to keep up with rising food, energy, and healthcare costs.
“No matter if the COLA announcement comes in slightly higher or slightly lower than our prediction, seniors will not be happy,” said Shannon Benton, executive director of the Senior Citizens League, which projects a 3.5% COLA.
The annual adjustment is calculated by averaging inflation data for the third quarter of the year and comparing that to the previous year, based on the Consumer Price Index for all urban wage earners and clerical workers (CPI-W). The CPI-W weights the costs of goods and services paid by the urban segment of the population more than other expense categories.
The forecasts are based on inflation data, which showed consumer prices in August rose 3.4%. The CPI-W rose 3.5% last month compared to a year ago.
There are concerns about that calculation, namely that urban workers face different financial pressures than retirees, who typically spend, for example, a greater share of their income on healthcare and prescription drugs.
“Social Security COLAs are supposed to protect beneficiaries from inflation, but they have increasingly fallen short of the costs seniors actually face,” Benton said.
2 controversial proposals
Two big ideas are getting attention in Washington about changing how the COLA is calculated.
One proposes using the Consumer Price Index for the Elderly, or CPI-E, to calculate COLAs. CPI-E expenditures are weighted differently, with medical care, housing, and recreation costs making up a larger share of the index than food, apparel, transportation, and education costs.
“The CPI-E is designed around the spending patterns of older Americans,” Benton said, and “can provide a more realistic measure of the inflation they experience.”
It doesn’t produce a dramatically higher COLA every year, but even relatively small differences compound over a long retirement.
“It’s actually more consequential than meets the eye, and that just digs the hole a little deeper on Social Security solvency in a way that might make it challenging to make this change,” said Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities.
