Social Security’s 3.6% COLA Is Set — and Why It Doesn’t Solve the 2033 Trust Fund Problem

The Social Security Administration has announced a 3.6% cost-of-living adjustment, or COLA, for 2027. Tied to the Consumer Price Index, the increase is meant to help benefits keep up with inflation.

That extra money is welcome for beneficiaries, but it also raises a bigger question: can the program afford higher monthly payments over the long run while facing serious financial pressure?

Social Security is indeed dealing with a funding challenge. Still, words such as “insolvent,” “bankrupt” and “depleted” often overstate the situation. The program has faced similar strain before, and it can be addressed again. The 3.6% benefit increase is not what will push it over the edge.

A Real Crisis, but One That Is Often Overstated

Although some headlines suggest Social Security is headed for bankruptcy within a decade, the program will not stop paying benefits within 10 years. Even so, it will face major shortfalls unless Congress acts.

Social Security is financed by payroll taxes, but since 2021 it has paid out more in benefits than it has taken in, according to the Center on Budget and Policy Priorities. To make up the difference, it has relied on Treasury Department-administered trust funds holding surplus revenue from earlier years.

The SSA’s Trustee Reports say those trust funds are expected to be exhausted in 2033. If lawmakers do nothing, the program would then depend only on incoming payroll taxes, which would cover roughly three-quarters of scheduled benefits, or about 77% to 78%. In practical terms, a $1,000 monthly benefit would fall to about $770 to $780.

Why the COLA Does Not Change the Outlook

Federal law has required annual COLAs since 1975, and the SSA’s Trustee Reports already build those increases into their forecasts. That means the scheduled 3.6% raise will not speed up the trust fund’s depletion, even though it does modestly increase program costs. Because COLAs are already part of the assumptions, only an unusually large inflation-driven increase would drain the trust funds faster.

Social Security Has Faced This Before

Social Security confronted a similar problem four decades ago, when benefits were also exceeding tax revenue and the trust funds were nearing exhaustion. According to the Center for Retirement Research at Boston College, lawmakers responded in 1983 with changes that extended the period of fully funded benefits by nearly half a century.

Even though the shortfall could be seen coming, Congress waited until the last possible moment to act. That delay resembles the current impasse since the Trustees Report first projected 2033 depletion: the available fixes are politically unpopular, and few elected officials want to publicly support:

• cutting benefits

• raising taxes

• some combination of both

Still, the Trustee’s Report shows that dozens of lawmakers from both parties have proposed difficult reforms since 2020 to help stabilize the program’s finances, aware that allowing such an important safety net to fail would be even less popular politically.