The early 2027 Social Security cost-of-living adjustment (COLA) projection indicates that retirees and social security beneficiaries could receive a smaller increase in benefits next year.
The Social Security Administration (SSA) will not announce the official 2027 COLA until October 2026, after reviewing third-quarter inflation data.
Still, modest COLAs don’t keep pace with the real costs seniors face. TSCL estimates that the average Social Security payment has lost about 20 percent of its purchasing power since 2010.
“The CPI-W is a price index published monthly by the Bureau of Labor Statistics (BLS) that measures the cost of more than 200 common household expenses, grouped into categories such as housing, food, and transportation,” states TSCL. “The problem is that the CPI-W measures changes in prices for urban wage earners, whose budgets look a lot different than a typical senior’s.”
It’s long argued, and an ongoing annual debate, that the CPI-W does not reflect the true costs seniors face, especially for health care and housing. The alternative metric is the Consumer Price Index for the Elderly, or CPI-E, and adjusts spending weights to better match older Americans’ budgets.
TSCL estimates that if COLAs had been calculated using the CPI-E over the past decade, benefit increases would have been higher in most years.
Taking it a step further, TSCL proposed an additional framework, called CPI-BEST. This framework would guarantee a minimum annual COLA of 3 percent and apply whichever index, either CPI-W or CPI-E, is higher and better for older Americans in years of elevated inflation.
Under that model, TSCL estimates that average COLAs over the past 10 years would have been about 4 percent, compared with roughly 2.8 percent under the current CPI-W system.
- Housing: CPI-E places more weight, with 48.051 percent. CPI-W is 41.932 percent. This shows a reflection of higher housing costs for retirees.
- Medical Care: CPI-E is higher at 11.296 percent than CPI-W at 6.946 percent, reflecting seniors’ greater health-care spending.
- Transportation: CPI-W is higher at 19.290 percent than CPI-E at 3.966 percent, showing greater transportation spending among working households.
- Food and Beverages: CPI-W is higher at 15.959 percent, while CPI-E is 13.223 percent.
- Education and Communication: CPI-W is higher at 5.534 percent than CPI-E at 3.652 percent
- Recreation: CPI-E is higher at 5.097 percent than CPI-W at 4.499 percent.
- Apparel: CPI-W is higher at 2.751 percent than CPI-E at 1.863 percent.
- Other Goods and Services: CPI-W is higher with 3.089 percent than CPI-E with 2.853 percent.
“The CPI-E reflects that, in general, seniors spend more of their budgets on housing, medical care, and to a lesser extent, recreation than people who live in cities and earn their income by working,” according to TSCL. “Meanwhile, it shows that seniors tend to spend less on things like transportation, food and beverages, education and communication, and apparel.”
The article, “Social Security’s COLA: Let’s Not Mess with the Index,” estimates that switching to the CPI-E would increase COLAs and widen the 75-year funding shortfall. On the other hand, adopting the chained CPI would reduce the deficit but lower COLAs, thus “the current method of adjusting benefits seems just about right.”
While the Motley Fool reports that you can’t control the COLA, “there may be other ways you can get the money you need if you’re worried Social Security may not go far enough next year. Obviously, if you have personal savings, you can rely more heavily upon those.”
- Consider part-time work, if possible, to supplement Social Security income and maintain a sense of purpose.
- Look into federal, state, and local assistance programs that may help offset living expenses, and check with your state social services agency for available options.
- Monitor future Social Security COLA projections, which typically become more accurate closer to the official announcement and can help with financial planning for 2027.
