How Social Security's COLA Is Calculated, and What the 2027 Figure Could Be

How the COLA formula works

The Social Security Administration (SSA) bases its annual cost-of-living adjustment on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, which is tracked by the U.S. Department of Labor, according to AARP's explainer on the formula.

Specifically, SSA compares the average CPI-W reading for July, August and September of the current year with the average for the same three months of the prior year. The percentage change between those two averages, rounded to the nearest tenth of a point, becomes the COLA. If prices have not risen by at least 0.1 percentage point year over year, there is no increase.

Because the formula depends on the third-quarter average, the final number cannot be known until the Bureau of Labor Statistics publishes its September inflation data, which is also when SSA issues its annual COLA announcement.

Recent adjustments and the 2027 outlook

The 2025 COLA was 2.5%, and it rose to 2.8% for 2026, an increase SSA announced on October 24, 2025, lifting the average retirement benefit by about $56 a month starting in January 2026, according to a summary of the SSA announcement published by the American Action Forum.

For 2027, independent analyst Mary Johnson has projected a 3.4% increase, while The Senior Citizens League (TSCL), an advocacy group, forecast 3.6% in its most recent estimate before the official data was released. TSCL said a 3.6% COLA would raise the average benefit by $69.75 a month, from $1,937.53 to $2,007.28, though its estimate uses a statistical model based on CPI trends, Federal Reserve interest rates and the unemployment rate rather than the government's own formula.

Why the number isn't final until mid-October

Private forecasts like TSCL's and Johnson's are updated monthly as new CPI data comes in, but they are not the official calculation. Only SSA, using the completed July-August-September CPI-W average from the Bureau of Labor Statistics, sets the legal COLA figure, scheduled for release on October 14, 2026.

Both estimates for 2027 have already fallen from a summer high near 3.8%, reflecting cooler monthly inflation readings, according to reporting compiled by NBC Chicago.

What else changes alongside the COLA

The October announcement covers more than the benefit increase itself. SSA typically updates several linked figures for the following January at the same time, based on reporting from Yahoo Finance.

• The maximum earnings subject to Social Security payroll tax, which was $184,500 in 2026, is expected to rise again for 2027.
• Earnings limits for beneficiaries who work before reaching full retirement age — $24,480 and $65,160 in 2026 depending on the beneficiary's age — are adjusted along with the COLA.
• The earnings needed to receive one Social Security work credit, $1,890 per credit in 2026, is also expected to increase.
• Maximum Supplemental Security Income (SSI) and disability payments rise alongside the COLA.
• Medicare Part B premiums, announced separately from the COLA, can offset part of the increase in a beneficiary's net check once deducted.

Because the COLA and Medicare premium announcements come from different processes, the exact change a beneficiary sees in their January payment can differ from the headline COLA percentage.