Mary Johnson Cuts 2027 Social Security COLA Forecast to 3.7% From 4.7%

Q: Is the formula for calculating Social Security's annual raise fundamentally broken for retirees?

Yes—many experts say the Social Security COLA formula is not working well for retirees, even if it is doing what it was designed to do. The core problem is that Social Security uses the CPI-W, an inflation index based on urban wage earners and clerical workers, not older households. Retirees typically spend more on healthcare, housing, utilities and insurance, so their real inflation often runs higher than the index used to calculate the annual raise. Groups such as The Senior Citizens League and other advocates argue that the CPI-E, which tracks older Americans’ spending more closely, would be a better fit. The formula is also backward-looking. The 2027 COLA will be based only on inflation in July, August and September 2026, then applied in January 2027. That means retirees can spend months absorbing higher prices before benefits catch up, and the adjustment can miss inflation spikes outside that window. Recent experience shows the gap. The 2026 COLA was 2.8%, but Medicare Part B premiums rose to $202.90 a month and other essentials such as fuel and shelter also climbed, reducing the real value of the increase. Analysts say this mismatch has steadily eroded purchasing power for many beneficiaries. That said, the formula is not “broken” in a technical sense: it is designed to keep benefits roughly aligned with general inflation, not to raise living standards. The real debate is whether the wrong inflation measure is being used for retirees’ actual costs.

2 articles · Updated · The Motley Fool · Jul 19

Johnson lowered her 2027 Social Security cost-of-living adjustment estimate to 3.7% after June inflation came in cooler, down 1 percentage point from her 4.7% projection a month earlier.
Third-quarter inflation will determine the official COLA, so data over the next three months could still push the estimate back above 4% or closer to this year's 2.8% increase.
The Social Security Administration is expected to announce the 2027 COLA in mid-October, after September inflation data is released.
For retirees, a smaller COLA may mean less of a benefit increase, but it also signals easing price pressures that can help fixed incomes stretch further.