Social Security's Biggest-Ever COLA Was Huge - Will 2027 Come Close?

The cost-of-living adjustment (COLA) helps ensure that Social Security senior benefits keep up with inflation and retain their purchasing power. The COLA has gotten lots of attention this year, as surging inflation generated talk about a potential sizable increase in 2027. Projections have varied significantly, with talk of the COLA being one of the largest in four years, but since the official COLA isn't scheduled to be released until October, everyone has to wait a bit longer to find out how large that increase might be.

But how might next year's COLA compare with the largest increase ever in the program's history?

The largest COLA in Social Security history

The largest COLA in Social Security history was a 14.3% adjustment in 1980. In 1979, the COLA was an unusually high 9.9%, and 1981 saw an 11.2% COLA. During that time, the country experienced historic price increases and inflation that jumped up into the low teens. 

The early 2020s saw some higher COLAs, though none rivaled the double-digit COLAs of the 1980s. Social Security benefits rose 5.9% for 2022 and 8.7% for 2023. Generally speaking, the past three decades have tended to see COLAs in the low single digits, though many retirees likely remember the high increases of 2022 and 2023.

How the COLA is calculated

Short of an inflation shock similar to the one seen in the early 1980s, it's unlikely that the 2027 COLA would approach the 14.3% adjustment of 1980. That's because the COLA is calculated based on inflation rates and how they compare to the previous year.

The COLA calculation uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data. The CPI-W measures inflation and resulting price changes for goods and services.

The Social Security Administration (SSA) only uses CPI-W data from the third quarter, so the inflation in July, August, and September determines the COLA. Data from the current year is applied to data from the same period during the previous year, and the SSA applies the percentage difference as the COLA for the following year. (If the difference is negative, no change is applied.)

Current projections for the 2027 COLA

Cooling July inflation rates have prompted industry experts to adjust their 2027 COLA projections. AARP estimates the COLA to be 3.5%, which could result in a benefits increase of about $73 per month for the average worker.

The Senior Citizens League, a nonprofit that advocates for older adults, projects a 3.6% COLA for 2027. In July, the Senior Citizens League projected a higher 3.8% COLA.

In June, Mary Johnson, an independent analyst, projected a sizable 4.7% COLA, but she's since adjusted that projection to 3.7% based on the new data.

A large COLA isn't always a good thing

A larger COLA and the corresponding increase in Social Security benefits might seem like a positive for older adults, but that isn't necessarily true. The COLA isn't intended to outpace inflation, but just to keep up with it. A larger COLA signifies that inflation is high, meaning older adults may need that extra money to keep up with climbing prices.

A smaller COLA indicates that inflation is easing and the cost of goods isn't rising as quickly. As a result, seniors may enjoy some relief from higher expenses for food, medicine, housing, and more.

The COLA may not keep up with retirees' costs

The COLA may also not truly keep up with retirees' costs. The COLA calculation uses CPI-W data, which reflects the costs that working individuals face. Retirees tend to spend more in other areas, like health care, which often outpaces the inflation rate.

The COLA won't go into effect until 2027, but inflation has already climbed in 2026. That means retirees are left to pay for inflated costs this year before ever seeing a benefits increase intended to help cover higher expenses. And, if inflation rises in the fourth quarter of 2026, that won't be reflected in the 2027 COLA, so the benefits may already have fallen behind actual prices in early 2027. The COLA may help ease some of the difference, but it's not a perfect science.

Bottom line

Data to be used in the COLA calculation is still being released, so projections might still change. Remember that a larger COLA indicates that you're paying higher prices, so while it might initially seem like a relief, you'll need to judge that increase against what you're actually spending for health care, food, housing, energy, and other expenses.

Coping with price fluctuations on a fixed income may be difficult. You may want to consider strategies to build a little extra flexibility into your budget, like getting a side hustle or building up your emergency savings so you have extra funds to cover unexpected expenses. Consider consulting with a financial planner to make sure you're on track for retirement and to adjust your strategy if needed.

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