Social Security Sets 3.6% 2027 COLA as Trump Tariffs and Iran War Lift Inflation

Q: Why might the outdated inflation formula used for your upcoming COLA actually leave you poorer despite the 3.6% raise?

Because the 3.6% COLA is based on an inflation formula that does not match how many older Americans actually spend their money, the raise may not preserve your buying power. Social Security uses the CPI-W, an index tracking spending by urban wage earners and clerical workers. Critics say that measure is outdated and too narrow because it reflects working households, not retirees, who typically spend more on healthcare, prescription drugs and housing. Those costs have often risen faster than the CPI-W suggests, so a 3.6% increase can still lag behind a senior’s real inflation rate. That gap is one reason many beneficiaries say the increase is not enough. AARP polling found large majorities of older adults believed a COLA closer to 5% to 8% would better cover daily expenses. Research cited in the broader coverage also shows Social Security benefits have lost purchasing power over time, in part because the formula does not fully capture the expenses older households face. Net income can shrink further once Medicare costs are deducted. Part B and Part D premiums often come straight out of Social Security checks, so if those premiums rise, they can absorb a meaningful share of the COLA. For some higher-income retirees, income-related Medicare surcharges can reduce the gain even more. So even with a bigger monthly check, you may be able to buy less if your personal costs, especially medical care and housing, rise faster than the CPI-W-based adjustment.

3 articles · Updated · The Motley Fool · Oct 22

A 3.6% Social Security COLA will raise benefits in January 2027 by about $75 a month for the average retired worker and $59 for the typical disabled worker.
That increase is the fifth-largest annual COLA in 35 years, with the report tying the inflation boost to Trump-era tariffs and the Iran war's disruption of roughly 20 million barrels a day through the Strait of Hormuz.
Six straight annual COLAs of at least 2.5% from 2022 through 2027 mark the longest such streak in 30 years, extending a run of above-normal benefit increases after the low-inflation 2010s.
Medicare Part B offers a partial offset: the 2026 trustees report projects the standard premium rising 3.25% to $209.50 in 2027, below the 3.6% COLA and leaving many retirees with more of the increase.