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Why Social Security Recipients Could Get Shortchanged Again in 2027

Social Security recipients could be in for a big disappointment.

By Maurie Backman , Edited by Laura Hohenstein

Updated Aug. 3, 2026

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Living on just Social Security can cause seniors a world of financial strain. After all, the average monthly retirement benefit today is only about $2,084 per month, which amounts to roughly $25,000 in annual income. But some retirees end up living mostly or solely on those benefits because their financial situations don't allow them to build significant savings.

The good news is that Social Security benefits have built-in inflation protection. Each year, benefits are eligible for a cost-of-living adjustment, or COLA. The purpose is to help ensure that seniors don't lose buying power due to rising costs.

Initial estimates indicate that 2027's Social Security COLA could be much larger than 2026's, but seniors might end up getting shortchanged regardless of that.

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Social Security benefits could get a larger COLA in 2027

Earlier this year, Social Security benefits got a 2.8% COLA. Many seniors are hoping for a more generous raise in the new year. And if recent estimates are correct, they may indeed end up with a larger boost.

Following the most recent inflation report, the nonpartisan Senior Citizens League updated its 2027 COLA projection to 3.8%. COLAs are based on third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). For this reason, it's too soon to determine what next year's Social Security raise will amount to, as data from the months of July, August, and September are still needed.

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A larger COLA may not be enough due to a flawed formula

Even if next year's Social Security COLA is more generous than the 2.8% raise that came through this year, there's a good chance seniors will end up falling behind financially. And the reason boils down to a flaw in the way Social Security COLAs are calculated.

As mentioned earlier, those raises are based on changes to the CPI-W. But the CPI-W measures the spending of working Americans, not retired ones. And as such, the CPI-W does not accurately reflect the costs Social Security recipients tend to face.

The Senior Citizens League says that Social Security benefits in 2026 are only worth about 83.6 cents on the dollar compared to what they were worth back in 2016. So all told, benefits have lost 13.7% of their buying power over the past 10 years due to insufficient COLAs that don't keep up with real-world price increases.

Advocates say there's a better way to calculate COLAs

Some advocates are pushing for a better way to determine Social Security's annual COLAs and recommend using an index specific to older Americans — the Consumer Price Index for the Elderly, or CPI-E. But there's been hesitation to adopt this change for a couple of reasons.

First, the CPI-E is highly regarded as experimental. The Bureau of Labor Statistics, which puts it out, even uses that wording itself.

Secondly, switching to the CPI-E is expected to lead to larger Social Security COLAs. But as it is, Social Security is facing a serious financial crisis that could lead to benefit cuts in the not-so-distant future. Having to pay out larger COLAs could further strain the program's limited financial resources, leading to other problems.

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How to make up for less effective COLAs

Social Security's COLA formula is unlikely to change any time very soon. It could change in the future. But in the coming years, lawmakers have the problem of potential benefit cuts to contend with, so they're less likely to prioritize a change to how COLAs are calculated.

If insufficient COLAs have been causing you to lose out on buying power, there may be steps you can take to compensate for that. Try to generate more outside income by working in retirement. You could get a traditional part-time job, start a business, or join the gig economy. Just pay attention to Social Security's earnings test, which applies to people working and collecting benefits prior to full retirement age.

Also, make sure to put your money into the right investments. Right now, certificates of deposit may be paying generously. But if interest rates fall, that may no longer be the case. It's important to invest your money in a variety of assets that can put regular income in your pocket, such as bonds and dividend stocks or ETFs (exchange-traded funds).

Bottom line

Social Security COLAs are designed to help benefits keep up with rising costs. Unfortunately, they tend to trail real-world inflation for seniors due to a flaw in how they're calculated.

Lawmakers might one day make an important change to the COLA formula. Until then, it's best to take matters into your own hands and set yourself up with the income you need to thrive in retirement. That could mean exploring creative ways to earn money through a job or to start investing so your portfolio does more of the heavy lifting and you're able to boost your retirement income more passively.

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