2027 COLA Watch: Zeroing in on the Final Number

We’re less than three weeks out from the October 14 release of the 2027 Social Security cost-of-living adjustment (COLA), and the drumbeat gets louder with each wave of projections.

Will it be 3.5%, 3.6%, or something unexpected? If the prices used to calculate the September composite CPI do not exceed the August prices, then the COLA will be 3.4% or maybe less. But if the September numbers exceed August by just two tenths of a percent – and that’s a pretty good low-side bet – COLA will be 3.5%. And so on.

So, September consumer prices are the main uncertainty. Even though many people believe inflation has not eased, the outcome is still unclear. Because the Bureau of Labor Statistics (BLS) monitors market-basket prices daily, abrupt changes could affect the final calculation.

Now, with all that being said, and with pesky inflation still in the current picture, one thing is certain: the 2027 COLA will likely exceed the adjustments for both 2025 and 2026 and will well exceed the 2.6% average COLA awarded since the beginning of the millennium.

How Are COLAs Determined?

Let’s take a quick look at where that COLA number comes from. It’s based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, a BLS measurement of the average change over time in the spending patterns of urban wage earners and clerical workers.

While CPI-W is measured and reported monthly, the Social Security Administration only uses a snapshot of these statistics to determine COLA. The CPI-W calculations for the months of July, August, and September are averaged together and compared to the same three months from the preceding year and, if the percentage change is greater, that becomes the COLA for the coming year.

If the current year figure is lower than the preceding year, the COLA is set at zero for the coming year, since Social Security benefits cannot be reduced as a result of the CPI calculation process.

You may remember that this actually happened for the years 2010, 2011, and 2016. Also, from a timing standpoint, it should be noted that the COLA percentage is determined in October but not applied to benefit payments until the first payment in the following year.

The Final COLA Percentage May Not Be Reflected in Your January Benefit Payment

The standard Medicare Part B monthly premium is projected to increase to $209.50 in 2027, according to the 2026 Medicare Trustees Report. That’s a monthly increase of $6.60 beginning in January, so for those with a COLA exceeding that amount, the net increase in their benefit will be less than the quoted COLA percentage. There are some folks, though, who, due to a rule known as the “hold harmless provision,” will not see a decrease in their benefit payment because their COLA is less than the Part B premium increase.

According to the Social Security Administration, to qualify for the hold harmless provision, you must:

• Receive Social Security benefits or be entitled to Social Security benefits for November and December of the current year.
• Have your Medicare Part B premiums for December and January deducted from your monthly benefits.

But there are some exceptions. The “hold harmless provision” does NOT apply to you if:

• You enroll in Part B for the first time in 2022.
• You pay an income-related monthly adjustment amount (IRMAA) premium.
• You are dually eligible for Medicaid and have your premium paid by a state Medicaid agency.
• You switched from one benefit type to another, for example, from your own benefit to a survivor benefit.

The Larger COLA Argument

While many seniors are grateful for the ability to catch up a bit with rising prices, concern has been building for years about Social Security payments losing purchasing power even with COLA increases. For example, the Senior Citizens League (SCL) suggested in a recent website post that “Soaring inflation has caused Social Security benefits to lose 40% of their buying power since the year 2000.”

TSCL’s research studied expenditures typical for people ages 65 and up, comparing the price increases to the COLAs applied over the same period. They found that the cumulative price increases outweighed the increase in benefit dollars. The expenditure categories covered in the SCL research include cost increases in Medicare premiums and out-of-pocket health care costs that are not tracked under the CPI-W, the consumer price index currently used to calculate the COLA.

SCL and others encourage adoption of CPI-E (the consumer price index for elderly consumers). CPI-E is a measurement index thought to be more in tune with seniors’ spending patterns and is currently under study by the BLS as a research project. But concerns expressed by economists need to be addressed before official adoption.

On the flip side, many think tanks, fiscal conservative voices, and bipartisan commissions advocate a shift to chained CPI indexing, an approach that accounts for the consumer reaction to price changes – generally substitution of lower-priced items – and how that affects overall spending. The use of chained indexing is already in place in some areas like the indexing of federal tax brackets, where it has been shown to produce significant differences.

Learn More About COLAs Via the AMAC Foundation

In keeping with the AMAC Foundation’s mission of delivering important and timely information to America’s seniors, and recognizing that all eyes are on the upcoming COLA announcement, the AMAC Foundation has scheduled a briefing on the subject for Tuesday, October 6 at 2:00 pm. This free briefing will discuss the math behind the COLA determination process and will examine some of the history behind the benefit adjustment process.

We’ll also touch on some of the current debate on the process and its adequacy to maintain seniors’ purchasing power, including a specific COLA-related component of AMAC’s Social Security Guarantee proposal to preserve and modernize Social Security for the 21st Century.