Social Security recipients can expect an increase in their payments come January. This is largely derived from the recently reported consumer inflation rate for June, which has been staying elevated.
The Social Security Administration is getting closer to finalizing next year’s cost of living adjustment (COLA).
Here’s the essential information:
The situation is becoming more transparent
Consumer prices saw a 3.5% increase last month compared to the same period last year, dipping from May’s 4.2% growth, mainly due to a significant drop in oil and gasoline prices. But you might wonder, what does this mean for Social Security payments? The COLA for any given year relies on inflation data from the Bureau of Labor Statistics. Yet, it’s not exactly what you might hear in the news—though it’s fairly close.
The inflation rate that gets the most attention is the monthly change in the BLS’ Consumer Price Index for All Urban Consumers (CPI-U). However, the Social Security Administration actually relies on the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W) for this purpose. This latter index focuses on a more specific group, which can lead to slight differences from the CPI-U.
So, how often do these indexes diverge? While they can be quite distinct, they typically show similar trends. Notably, the year-on-year change in CPI-W for last month was also 3.5%, matching May’s rate and aligning with CPI-U.
Still, this doesn’t precisely reflect the cost-of-living adjustment that current Social Security recipients may see in January. This determination actually depends on the average year-over-year change in CPI-W across three months of the third quarter of each year. Final figures will be available in October; however, using two months of data should give us a clearer picture by September.
Pondering a COLA rate estimate of 3.5% for 2027 seems reasonable, especially considering that significant price shifts are not anticipated during that period. The Seniors Federation even projects a 3.8% increase next year. Both predicted increases, interestingly, will exceed the long-term average.
Your next steps
It’s worth mentioning that these projections aren’t set in stone, so it might be unwise to finalize your 2027 budget just yet. Moreover, keep in mind that these price hikes only signify the higher costs you’re already bearing. To put it simply, from a mathematical perspective, these adjustments aren’t necessarily a bad development.
If you’re looking to boost your retirement income, starting with straightforward strategies may be best. Consider striving for better yields on your cash deposits compared to those offered by standard banks, and perhaps think about switching low-dividend stocks for higher-yield options.
