Inflation Could Push Social Security COLA Above 4% in 2027

Inflation and soaring oil prices could trigger Social Security’s biggest COLA increase in years.

Due to surging inflation, millions of Social Security recipients may get a notable boost to their monthly payments in 2027.

The Social Security Administration’s annual cost-of-living adjustment, or COLA, is expected to rise between 3.9% and 4.2% next year, according to estimates released Tuesday that are based on the latest inflation report.

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According to the Department of Labor, prices rose a higher-than-expected 3.8% for the year ending in April, largely as a result of the ongoing Iran war, which is causing oil prices to soar.

For older and disabled Americans who rely on Social Security benefits, “massive jumps” in oil prices, in particular, puts strain on their budgets, says Mary Johnson, an independent Social Security and Medicare policy analyst who’s predicting a 4.2% COLA.

For example, Johnson notes residential heating oil costs have risen 54.3%. “And it doesn’t stop there,” she says: Coffee prices are up nearly 30%, and fresh veggies prices rose about 12%.

2027 COLA could hit 5-year high

If the COLA reaches about 4% for 2027, that would mark the largest benefits adjustment since 2022, when it hit a staggering 8.7% at the zenith of the pandemic-induced inflation crisis.

Each year, the Social Security Administration is legally required to recalculate benefits based on recent inflation trends to help payments keep pace with rising prices. However, the agency uses a separate inflation reading for urban and clerical workers, known as the CPI-W. For April, this inflation rate was slightly higher than the headline number, clocking in at 3.9%.

The official COLA will be announced in October.

Despite this built-in inflation protection, Social Security payments still fall short for many recipients, advocates warn. More than 70 million Americans rely on monthly Social Security checks. The lion’s share of them — about 57 million — are retirees.

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In April, the average monthly retirement benefit was $2,026. A 4% increase would push that to $2,107, for an increase of roughly $81. However, retirees must deal with the rising costs in real time, with the potential $81 increase not arriving for about seven more months.

According to The Senior Citizens League (TSCL) — the nonprofit advocacy group behind the 3.9% COLA prediction — that’s too little, too late.

“In volatile periods like this, especially when driven by sudden geopolitical events, the lag can significantly erode purchasing power and highlight the disconnect between lived expenses and the formula used to adjust benefits,” Shannon Benton, executive director at TSCL, previously told Money.

New research released on Tuesday by the group demonstrates the impact clearly. TSCL compared the buying power of Social Security benefits between 2016 and 2026 and found benefits lost 13.7% of their value during that 10-year period.

In other words, Social Security benefits would need to be about $296 higher today to be able to purchase the same amount of goods that they could in 2016.

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