New inflation data points to a potentially larger Social Security cost-of-living adjustment next year, offering some relief to retirees struggling with higher prices as concerns about the program’s long-term finances grow.
AARP is forecasting that Social Security recipients will receive a 3.6% cost-of-living adjustment, or COLA, for 2027.
If the estimate holds, it would be the largest adjustment since 2023.
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The final COLA is expected to be announced in October after the government releases inflation data for September.
The Social Security Administration calculates the annual adjustment using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. It compares the average index reading from July, August, and September with the average for the same three months in the previous year.
For retirees, a 3.6% adjustment could translate into roughly $75 more per month for someone receiving an average retirement benefit of about $2,085.
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That would increase the benefit to approximately $2,160 per month before accounting for changes in Medicare premiums.
Those additional dollars may not go as far as beneficiaries hope.
Medicare Part B premiums are typically deducted directly from Social Security payments, while retirees also face costs for prescription drugs, housing, food, and other necessities.
AARP has argued that the inflation measure used to calculate the COLA does not always reflect the spending patterns of older Americans, who tend to devote a greater share of their budgets to healthcare.
The annual COLA debate comes amid a much larger concern: Social Security’s long-term solvency.
The 2026 Social Security trustees report projects that the Old-Age and Survivors Insurance Trust Fund, which pays retirement and survivor benefits, will exhaust its reserves in the fourth quarter of 2032 if Congress makes no changes.
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At that point, continuing revenue would be sufficient to pay about 78% of scheduled benefits.
Considering the retirement and disability programs together, their combined reserves are projected to be depleted in 2034, with enough continuing revenue to pay about 83% of scheduled benefits.
That does not mean Social Security would disappear.
Payroll taxes would continue flowing into the system, but without congressional action, scheduled benefits could no longer be paid in full.
American retirees also receive less from mandatory retirement programs relative to their previous earnings than retirees in many other major developed economies.
The Organization for Economic Cooperation and Development, or OECD, estimates that a U.S. worker earning the average wage over a full career can expect mandatory retirement programs to replace about 51.3% of net preretirement earnings.
That replacement rate is below the OECD average, meaning U.S. retirees receive a smaller share of their previous earnings than the typical retiree across the organization’s member countries.
For example, suppose someone earned $4,000 a month after taxes while working.
If that person’s mandatory retirement benefits provided $2,000 a month after taxes, the net replacement rate would be 50%.
The OECD uses this approach because simply comparing Social Security payments in dollars would be misleading.
Salaries, taxes, living standards, and pension systems differ substantially between countries.
For an average-wage worker with a full career, the OECD estimates the U.S. net replacement rate from mandatory retirement programs at 51.3%, compared with an OECD average of 63.2%.
Comparable rates include about 70% in France, 53.3% in Germany, and 54.2% in the United Kingdom, while Japan’s rate is lower at 42.4%.
The figures highlight the pressure on American retirees: Social Security and other mandatory retirement programs replace a comparatively modest share of earnings, while Social Security’s finances approach a critical deadline.
For beneficiaries, the immediate focus will be the official COLA announcement in October.
A 3.6% increase would provide a meaningful boost in January, but inflation, Medicare costs, and Social Security’s unresolved funding gap could determine how much relief retirees ultimately feel.
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