Social Security’s Falling 2027 COLA Estimate Has a Silver Lining Retirees Should Know About

Social Security’s cost-of-living adjustments, or COLAs, are extremely important to many retirees — especially those who rely on Social Security for most or all of their monthly income. Those COLAs are what allow benefits to keep up with inflation, avoiding a scenario where seniors automatically fall behind year after year.

Back in January, Social Security benefits received a 2.8% COLA. And many retirees are no doubt hoping for a larger raise in 2027.

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Earlier this year, it seemed like 2027’s COLA would be huge compared to this year’s boost. But that COLA estimate has been falling.

That may seem like a bad thing. But here’s why it actually isn’t.

What 2027 COLA estimates look like today

Earlier this year, independent Social Security analyst Mary Johnson projected that 2027’s COLA would amount to 4.7%. Johnson has since lowered her forecast significantly to 3.4%.

Meanwhile, the Senior Citizens League, an advocacy group, had a working projection of 3.8% for 2027’s COLA in June and July. Earlier this month, that number was lowered to 3.6%.

If we average these projections, it looks like Social Security’s upcoming COLA may fall solidly in the mid-3% range. That would still be an improvement over this year’s 2.8% increase. But it doesn’t have quite the same ring as a raise above 4%.

A smaller COLA isn’t automatically bad news

If you’ve been tracking the 2027 COLA, these lower numbers may seem disappointing. But one thing to keep in mind is that a smaller COLA projection indicates that inflation is cooling.

Social Security COLAs are tied directly to third-quarter changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The reason 2027 COLA projections have fallen from the upper 4% range to the mid-3% range is slower price increases.

But that’s a good thing. Cooling inflation means your current Social Security benefits can go further.

In fact, one thing to keep in mind about Social Security COLAs is that they’re not meant to beat inflation. If you get a larger COLA one year, it typically means your living costs rose a lot the summer before. If you get a smaller COLA, it means prices stayed more stable.

All told, things should even out. So while you may be hoping next year’s COLA ends up creeping back into the 4% range, that’s not necessarily something to want. If that happens, it will come at the cost of higher expenses for the remainder of the third quarter of this year.

There’s still time for the number to wiggle

Two more months of CPI-W data are needed to calculate a 2027 COLA. The Social Security Administration should be announcing an official number in mid-October.

But either way, it’s important to recognize that declining COLA estimates have a hidden benefit — slower near-term price increases. Once you realize that, you may be less upset if next year’s COLA isn’t as large as the experts initially said it would be.