Social Security Recipients May Be in Line for Another Outsized COLA Boost

Social Security beneficiaries are marching their way toward a decent-sized payment increase this coming January. That's one of retirees' top takeaways from the recently reported consumer inflation rate for June.

It's holding on to recently elevated levels, inching closer to the point when the Social Security Administration makes the call on the following year's cost-of-living adjustment, or COLA.

Here's what you need to know.

The picture is getting clearer

Overall consumer prices were up 3.5% year over year last month, easing back from May's growth rate of 4.2%, thanks to a sizable decline in oil and, therefore, gasoline prices. But what does this have to do with Social Security payments? The size of any particular year's COLA is based on inflation numbers from the Bureau of Labor Statistics -- just not the recently touted numbers exactly (although they're close).

See, the inflation figures typically cited by the media are the monthly changes to the BLS' Consumer Price Index for all urban consumers, or CPI-U. That's not exactly the data the Social Security Administration considers when making the call, though. It's close. However, by law, the program's cost-of-living adjustment is based on the BLS' Consumer Price Index for urban wage earners and clerical workers, or CPI-W; this is a subset of the group considered when calculating the CPI-U.

And how is this different? It's usually not much different, if different at all. Indeed, last month's year-over-year change in the CPI-W is a CPI-U-matching 3.5%, in addition to repeating May's CPI-W inflation rate.

That's still not quite the cost-of-living adjustment that current Social Security recipients can count on come January, however. It's close. But the program uses the average year-over-year change in CPI-W for the three months of the third calendar quarter of any given year to determine the next year's COLA. We won't know that final number until October, although we'll have a pretty good idea of what it's going to be by September, with data for two of those three months then in-hand.

Of course, given the unlikelihood of any major price changes in the meantime, a 2027 cost-of-living adjustment in the ballpark of 3.5% is a pretty reasonable bet. The Senior Citizens League still predicts next year's COLA increase is going to be 3.8%, for perspective. Either increase would be above the long-term average, though.

Your next step

Nothing is etched in stone, for the record, so don't start putting your 2027 budgets in ink just yet. Also, bear in mind that these increases only match the higher prices you're already paying. Mathematically speaking, you won't technically be any better off.

Either way, if you just need more retirement income, start with the most obvious and easiest things. That's getting more yield on your cash deposits than the typical brick-and-mortar bank offers, and swapping out your lower-yielding dividend stocks for higher-yielding ones.

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