The latest inflation reading showing prices soaring due to the Iran war should mean a larger increase in Social Security benefits next year.
The Social Security cost-of-living adjustment, or COLA, will increase to 3.9% in 2027, up from this year’s 2.8%, according to a new estimate from the Senior Citizens League. That means the average benefits check for retired workers would increase by $81.17, from $2,081.16 to $2,162.33.
The Consumer Price Index rose 3.8% in April, compared with expectations for a rise of 3.7%, and up from 3.3% in March. Energy prices accounted for 40% of the increase, while shelter and food also surged.
“Many seniors already forgo essentials like medical care because they can’t keep up with rising costs,” Senior Citizens League executive director Shannon Benton told Yahoo Finance. “Even if the COLA comes in as we project, seniors will continue to feel squeezed.”
Benton and other experts say the current calculation does not accurately reflect inflation experienced by the senior population or their expenses. The COLA is calculated with data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) — that is, working Americans. Advocates say the COLA should be changed to use the government’s Consumer Price Index for the elderly, or CPI-E.
“The CPI-W doesn’t reflect their reality, ” Benton said. “It’s based on the spending of younger workers, not retirees who face rising costs in healthcare, housing, and prescriptions.”
Read more: When will I get my Social Security check? Payment schedule for the month.
Per Benton, compared to 2016, Social Security benefits are only worth about 86.3 cents on the dollar, having lost nearly 14% of their buying power due to COLAs that do not keep up with real-world inflation.
“The fact is that inflation hits seniors differently than the rest of the population for two main reasons: Their income doesn’t grow like the rest of the population’s does, and their budgets look different,” Benton said.
Mary Johnson, a Social Security expert analyst, is projecting a higher 2027 COLA of 4.2% due to sharply rising prices for gasoline, energy, and fresh produce.
“These sorts of price spikes are every retiree’s worst nightmare,” Johnson told Yahoo Finance. “It feels like someone is stealing from us. The goods and services that we never thought much about a few years ago have rapidly become so expensive that many may be going without.”
The Social Security Administration is expected to announce the official COLA in mid-October.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including “Retirement Bites: A Gen X Guide to Securing Your Financial Future,” “In Control at 50+: How to Succeed in the New World of Work,” and “Never Too Old to Get Rich.” Follow her on Bluesky and X.
