Retirees May See the 3.6% Social Security COLA as a Real Boost in 2027

The 2027 Social Security cost-of-living adjustment, or COLA, may end up topping inflation and improving Baby Boomers’ buying power next year.

According to a new Bank of America Institute report, if inflation eases as economists expect, the increase could feel more like a raise for beneficiaries.

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The Social Security Administration said the COLA will be 3.6%, the biggest jump since 2023. For most recipients, it is scheduled to begin in January and would add an average of $75 a month to retirement benefits.

Many beneficiaries are asking the same question: Will that be enough? Advocacy groups, including the Senior Citizens League, say the answer is no.

“A 3.6% COLA is not enough!” John Adams, the group’s chairman, said in an email blast, adding that it will not keep up with “the rising cost of everyday essentials.”

Measured by the consumer price index for urban wage earners and clerical workers, or the CPI-W, annual inflation is 3.9%, which is above the 2027 COLA.

How the COLA compares with projected inflation

Looking only at the COLA versus current inflation is not the only way to judge the increase. The Bank of America Institute said in its report that there is historically a connection between the COLA and retirees’ spending in the year it takes effect.

The Social Security COLA is a standard federal adjustment meant to keep benefits aligned with prices. It generally does not make or break a retiree’s budget. “But when inflation is close to a turning point, the increase can end up looking relatively high or low compared with inflation over the course of the following year,” David Tinsley, senior economist at the Bank of America Institute, wrote in the report.

The COLA is based on a comparison of average CPI-W inflation in the third quarter of one year with the third quarter of the previous year.

If the COLA outpaces inflation, retirees’ benefits rise faster than prices, leaving some older Americans with a little more room in their budgets.

Using the 2023 COLA as the latest example, Bank of America found a connection between the 8.7% increase, which far exceeded inflation that year, and slower spending growth among Baby Boomers and the Silent Generation.

The report suggests 2027 could be a smaller-scale version of that pattern. “The consensus expectation is that CPI inflation is likely to cool over 2027, largely reflecting the lessening impact of higher gasoline prices,” Tinsley wrote.

If that happens, benefits would rise more than prices. Even so, near-term inflation remains hard to forecast, and energy-price shocks continue.

Tinsley also noted the unusual mix of income sources for Americans age 60 and older, many of whom receive pensions and Social Security and tend to earn more from interest, dividends and rental income than younger people do.

Low unemployment and wage growth have been the main forces behind economic gains for workers, but those trends do little for people who are already retired.

Bank of America’s data shows that discretionary spending growth among older generations has trailed that of younger generations for about a year. That is one more reason the COLA cannot come soon enough for tens of millions of Social Security beneficiaries.

The report’s conclusion: “If these [inflation] expectations prove correct, households that rely on Social Security may receive a more impactful boost to their budgets next year than they have for the last few,” Tinsley wrote.