Why Social Security’s Annual COLA Grows More Vital as Retirees Age

The Social Security Administration (SSA) announced last month the cost-of-living adjustment (COLA) for 2027, delivering relief to beneficiaries’ monthly payments as inflation remains persistent.

The adjustment will increase benefit checks by 3.6% in 2027, beginning with payments issued in January. For a typical beneficiary, that translates to an average raise of roughly $75 per month.

Each year, the COLA reflects inflation measured during the third quarter of the prior year. This year’s price data from July, August, and September produced the 3.6% figure.

Bill Sweeney, senior vice president of government affairs at AARP, told FOX Business that for the “vast majority of Americans, their Social Security is kind of the only thing in their retirement portfolio that is inflation-adjusted, and so it becomes really important for retirees, especially as they get older.”

Social Security’s annual COLA for 2027 will be 3.6%. (Jim West/UCG/Universal Images Group via Getty Images)

Sweeney noted that the adjustment is especially meaningful for older retirees, helping their budgets keep pace with rising prices.

“This cost-of-living adjustment — it may not matter as much when you’re 67 or 68 — but as you get into your 70s and 80s when it’s no longer realistic for you to go back to work if you need to sort of fill in your budget, the COLA really does make sure that Social Security keeps up with rising costs,” he said.

Social Security and private savings play a crucial role in retirement savings given the decline in pensions. (Mark Felix/The Washington Post)

Pension plans were once a larger part of Americans’ financial outlook, but as they have faded in recent decades, private savings and Social Security benefits have taken on a more central role in retirement planning.

“We used to talk about a three-legged stool of retirement security, which was your pension, your private savings and Social Security,” Sweeney said. “The Gen Xers are the first generation really retiring with only those two stool legs left.”

He added that “about half of people rely on Social Security for almost all of their income,” and that “about 20%, almost all of their income is Social Security, and so this COLA is really important for this group, especially for whom this is the difference between putting food on the table or not.”

Social Security’s annual COLA boosts benefits for the following year when inflation rises in the current year. (Getty Images/stock)

The 2027 adjustment is the largest since 2023, when benefits climbed 8.7% to reflect a sharp spike in inflation.

As inflation cooled over the following three years, the COLA diminished in turn, coming in at 3.2% in 2024, 2.5% in 2025, and 2.8% in 2026.

“Social Security’s cost-of-living adjustment is really critical to making sure that in years of high inflation, you don’t fall behind,” Sweeney said.

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