A higher COLA is a sign that persistent inflation isn't going anywhere

The average cost-of-living adjustment over the past 20 years has been 2.6%, according to advocacy group Senior Citizens League.

Social Security's cost-of-living adjustment for 2027 could be at least 3.4%, adding about $71 to the average retiree's monthly benefits as inflation continues to push prices higher.

Analyst estimates for next year's COLA ranged between an increase of 3.4% to 3.6% - markedly higher than the average increase of 2.6% seen over the last 20 years. The forecasts were also above the 2026 COLA of 2.8%. The official announcement for 2027's COLA will be released on Oct. 14 and go into effect in January.

While seniors will welcome a higher monthly payment, the COLA is not a raise, but rather an adjustment to help about 68 million beneficiaries keep pace with inflation. The average Social Security retirement benefit was about $2,086 a month as of July, according to the Social Security Administration. A higher COLA also speeds the insolvency of the Social Security trust fund.

Social Security's COLA is based on inflation in the third quarter of the year, spanning the months of July, August and September. It is informed by the consumer-price index (CPI), a key economic metric that tracks the average change over time in prices paid by consumers for goods and services. It is widely used by the U.S. government to measure inflation.

The COLA forecasts ranged from 3.4%, from the Committee for a Responsible Federal Budget think tank, to 3.5% from the likes of independent Social Security and Medicare analyst Mary Johnson and the Senior Citizens League advocacy group, to 3.6% from AARP.

Social Security is crucial to the finances of older adults, with 44% of older Americans depending on the program for all of their income, up from 39% in 2025, according to the Senior Citizens League.

The CPI rose 0.4% in August on a seasonally adjusted basis, bringing the 12-month inflation rate to 3.4%, according to the Bureau of Labor Statistics. Core inflation totaled 2.4%, above the Federal Reserve's 2% target. The core inflation metric excludes food and energy prices. Inflation in August was driven by higher prices for rent, hotels, airfares and used cars.

The COLA is specifically based on the CPI-W, an index based on the prices paid by urban workers. Legislators have proposed instead using a different index, the CPI-E, which focuses on costs faced by the elderly.

"No matter if the COLA announcement comes in slightly higher or slightly lower than our prediction, seniors will probably end up disappointed in the long run. The reality is that older Americans allocate their budgets differently than people still in the workforce, so inflation hits them differently. The CPI-W captures the experience of urban wage earners, which doesn't represent the average senior's budget," said Shannon Benton, executive director of the Senior Citizens League.

High COLAs can provide helpful near-term financial support to seniors, but they also hurt the Social Security retirement fund that is now just six years from insolvency. It is projected that in 2032, Social Security's benefits will be automatically cut by 22% unless Congress acts first to shore up the system.

"Pay close attention to the debate over Social Security solvency now," Johnson said. "COLAs and your Social Security benefits are in the crosshairs."

-Jessica Hall