Social Security announces 3.6% COLA for 2027, the highest in 4 years

The Social Security Administration on Wednesday announced a 3.6% cost-of-living adjustment (COLA) for 2027. That's well above both this year's COLA and the 2.6% average over the past two decades.

Starting in January, the increase will add an average of $75 per month for roughly 75 million retired seniors and disabled workers.

The 2027 COLA will be the highest in four years — but still not enough for millions of retirees to keep up with rising food, energy, and healthcare costs .

The COLA is "supposed to offset inflation, but it under-measures it," Nancy Altman, president of Social Security Works, a nonprofit advocacy organization, told Yahoo Finance. "Thanks to the war in Iran and the tariffs, we've got raging inflation and the COLA, as important as it is, will not fully offset the inflation seniors are experiencing."

The annual cost-of-living adjustment is many retirees' only source of retirement income that is not subject to inflation risk. That inflation protection is crucial because Social Security is also the largest source of income for many retirees.

Today, for about half of seniors, their monthly Social Security benefit provides at least 50% of their income, and for about 1 in 4, it's at least 90%.

For more than a quarter, it's their only source of income. The average retiree's benefit is $2,087.52 per month and will rise to $2,162.67.

The COLA is calculated using the Consumer Price Index for urban workers, or CPI-W, which weights the costs of goods and services paid by the urban segment of the population more than other expense categories. It averages data for July, August, and September, then compares that figure with the same period last year.

Inflation heated up to 3.7% annually last month as energy prices soared, new data showed, driven primarily by higher energy prices.

Critics argue that the index does not accurately reflect the expenses many seniors face.

One proposal would use the Consumer Price Index for the Elderly, or CPI-E, to calculate COLAs. CPI-E expenditures are weighted differently, with medical care, housing, and recreation costs making up a larger share of the index than food, apparel, transportation, and education costs.

"The CPI-E is designed around the spending patterns of older Americans" and "can provide a more realistic measure of the inflation they experience," said Shannon Benton, executive director of the Senior Citizens League, a nonprofit advocacy organization.