The numbers are out for the Cost-of-Living Adjustments for Old-Age, Survivors, and Disability Insurance and Supplemental Security Income.
By Wolf Richter for WOLF STREET.
The 71.5 million Social Security beneficiaries will see their benefit increase by 3.6% in the calendar year 2027, according to today’s release of the inflation data for September. It will be the largest Cost-of-Living Adjustment since 2023 (8.7%).
The new COLA will be applied to Old-Age, Survivors, and Disability Insurance (OASDI) benefits paid starting in January 2027.
The COLA is based on the average of the year-over-year increases of the Consumer Price Index for All Urban Wage Earners and Clerical Workers (CPI-W), not seasonally adjusted, for July (3.40%), August (3.52%), and September (3.93%), released by the Bureau of Labor Statistics.
The COLA also applies to Supplemental Security Income (SSI) payments.
Because the applied COLAs are based on inflation data for July, August, and September of the prior year, they reflect past inflation. So in years when inflation surges, the COLAs, reflecting the cooler inflation in the prior year, lag behind and beneficiaries lose purchasing power. And in years when inflation cools, the COLAs, reflecting the hotter inflation in the prior year, catch back up, and recipients regain some of that lost purchasing power.
Social Security was designed to protect people from descending into abject poverty when they retire, after having worked all their lives. It’s a safety net and old-age insurance. And it more or less does that.
But Social Security benefits are not enough to retire on comfortably unless recipients do a lot of belt-tightening because the benefits are far smaller than the beneficiary’s peak income was.
In addition, CPI-W may not fully capture the increases in actual costs of living that beneficiaries may experience. These effects are cumulative and erode the purchasing power of those benefits a little more every year. And that adds up.
To prepare for a long comfortable retirement, people need to build additional resources over the course of their working lives, with Social Security being only the bottom layer.
Obviously, if you love the work you do and if you can keep doing it, the best retirement may be no retirement for as long as possible. It keeps the brain challenged and the body active. Our politicians have figured this out; they’re working into their 80s, or longer, and they’re having a blast, whether we like it or not. Even a part-time gig helps, and it can be a great way to remain engaged and active.
My detailed CPI inflation report will be posted in a little while.
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SS goes up and Medicare follows. The net you gain from SS minus the raise in Medicare won’t be 3.6%.
Same as with other costs, such as rent, HOA fees, homeowner’s insurance, food, etc. That’s inflation, including Medicare Part B, and the COLA is there to help cover inflation. The COLA is NOT additional retiree profit or a performance raise or bonus or whatever. You seem to confuse the purpose of the COLA. It’s supposed to help cover price increases, including from Medicare.
Time to buy bonds.
10-Yr Bond
5.31
+0.09
Yeah, that CPI report was pretty rough. CPI-W, which the COLA is based on, rose by almost 4% year-over-year in September.
TIPS
5 year opens tomorrow
I don’t want to tell my Mom, she will think this is an “ALL CLEAR” signal to go shopping.