Social Security COLA and tax relief may ease spending pressure for older Americans in 2027

Article Summary

The spending growth of older consumers has lagged behind other age groups over the past year, even as wealth at the top has increased sharply. According to a Bank of America Institute report released last week, a 2027 Social Security cost-of-living adjustment and a temporary tax break could slightly improve their buying power.

Using credit and debit card data, Bank of America found that households headed by baby boomers and traditionalists have recorded weaker growth in discretionary spending for about a year. That is a reversal from 2022 and 2023, when older households were spending faster than other Americans. The bank defines boomers as people born from 1946 to 1964 and traditionalists as those born before 1946.

The report says part of the slowdown stems from how wealth is distributed among older Americans. Citing 2025 data from the Federal Reserve Survey of Consumer Finances, the bank said roughly two-thirds of net wealth among households headed by someone over 65 is held by the top 10% of those households. As a result, gains in stocks and other assets may not translate into stronger spending for most older consumers.

Wage growth is lifting workers, not many retirees

Consumer spending strength broadly appears to be driven in large part by wage and salary growth, especially among lower- and middle-income working households. Older households, by contrast, rely on a wider mix of income sources and are less exposed to rising wages.

Federal Reserve survey data shows that as households get older, a smaller portion of income comes from wages or self-employment and a larger share comes from pensions, Social Security, and interest, dividends or rental income. Bank of America’s internal data show the gap this creates within older households: those over 62 who depend only on Social Security have average income and discretionary spending at close to half the level of peers who combine Social Security with pensions and employment income.

Spending that is not essential is also more uneven across income groups among older Americans than across all households. The study found retirees are the least likely group to expect their finances to improve over the next six months, underscoring the strain of living mainly on fixed income sources.

Policy support: tax deduction and Social Security boost

The report points to two policy changes that could help older consumers’ budgets in the near term:

• Temporary tax deduction: The One Big Beautiful Bill Act provides a temporary deduction of up to $6,000 for each taxpayer age 65 or older from 2025 through 2028. The deduction phases out above $75,000 of modified adjusted gross income for single filers and $150,000 for joint filers. Bank of America says this should improve after-tax income and spending power mainly for middle-income older households that owe meaningful federal taxes.
• Social Security COLA: The Social Security Administration has announced a 3.6% cost-of-living adjustment for 2027, taking effect in January. It is the largest COLA since 2023, though smaller than the 8.7% increase in 2022.

COLAs are tied to the year-over-year change in the third quarter Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. Although these increases are meant to protect purchasing power, their real value depends on how inflation moves in the following year.

In 2022, inflation slowed sharply after a large COLA went into effect, which effectively increased real benefits and helped older Americans outspend other age groups in 2022 and 2023.

Consensus forecasts cited in the Bank of America report expect overall inflation to cool in 2027, largely as the effect of higher gasoline prices fades. If that happens, the 3.6% COLA could exceed actual price growth, giving households that depend heavily on Social Security a more meaningful real income boost.

Why it matters for housing

The survey data shows the biggest spending gaps between older Americans and the overall population are in discretionary categories such as electronics, lodging, restaurants, clothing, furniture and airlines. In many of these areas, year-over-year spending growth among older cohorts trails the broader population by several percentage points.

Some of that difference likely reflects lifestyle and preference changes that come with age. But if Social Security benefits rise faster than prices and the tax deduction continues to help middle-income seniors, the report suggests older households may narrow the spending gap with other age groups.

Weaker discretionary spending by older Americans, along with highly concentrated wealth, highlights the financial pressure facing many households that are past their peak earning years. For housing professionals, the report suggests several takeaways:

• Senior housing demand mix: Small real income gains may support demand for lower-cost aging-in-place services, repairs and modifications rather than major discretionary moves or high-end rentals.
• Retirement cash-flow planning: Mortgage lenders and real estate agents working with older buyers and sellers should account for Social Security COLAs and targeted tax provisions when judging affordability, especially for fixed-income households.
• Segmented strategies: Because income and spending vary widely among people 62 and older, professionals may need different products and marketing approaches for asset-rich retirees and Social Security-dependent households.

Bank of America said its findings are based on anonymized, aggregated transaction and survey data and should be viewed alongside broader economic measures.