One of the side effects of the recent rise in inflation (driven largely by gas prices) is that Social Security recipients could see a larger hike in their checks next year. The latest projection from the Senior Citizens League is for a 3.9% increase in the cost-of-living adjustment, or COLA, for Social Security in 2027. That would be up from a 2.8% increase this year, and the largest annual rise in the COLA since 2023, when it rose 8.7% coming off the "Biden-flation" surge.
At this point, next year's COLA is just a rough estimate based on the most recent annual inflation reading, which was at 3.8% for April. The COLA is calculated using the average inflation rate of the third quarter months (July, August, September), so next year's actual increase won't be determined until later this year. Not only is the rate unpredictable, but it's not guaranteed to cover the actual rise in costs. "The way Social Security calculates the increase, they only look at the third quarter," says Mitch Kramer, founder and CEO of Fluent Financial. "So if prices continues to increase beyond the third quarter and into the fourth quarter, the raise would not be sufficient to keep up with the cost of living."
Because of the unpredictability of the COLA, Kramer recommends Social Security recipients keep saving money to be safe, rather than counting on a windfall next year. "Just be careful," he tells KTRH. "There's no downside to saving."
"Just like getting raises at work, you should save that money and not increase spending until you know exactly what (the COLA) is going to be," he continues. "We have no idea how long this Iranian war is going to last, and once it is resolved one way or another it could take months to return to normalcy...so unfortunately, I think inflation is going to be with us for some time."
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