Social Security recipients will receive a 3.6% cost-of-living adjustment in 2027, the fifth-largest in the past 35 years. The increase largely reflects rising energy prices amid the conflict in the Middle East, according to The Motley Fool.
Social Security recipients will get a 3.6% increase to their monthly benefits beginning next year, 0.8% higher than this year's COLA. The jump reflects high inflation, and the 2027 adjustment is the fifth-largest in the past 35 years.
CPI-W, not CPI-U, sets the adjustment
The CPI-U is the country's main inflation figure, and in September it was 3.7% from a year ago. Social Security, however, uses the CPI-W, which centers on the expenses of hourly wage earners and clerical workers.
In September, the CPI-W rose 3.9% from last year, its second-largest year-over-year increase this year, behind May's 4.4% jump. The CPI-W has been higher than the CPI-U every month since April. The gap comes down to weighting: the CPI-W gives more weight to expenses like rent, transportation, food and beverages, apparel, and fuels and utilities.
Energy costs push September inflation higher
The 2027 COLA largely reflects rising energy prices amid the conflict in the Middle East. The Strait of Hormuz, the route for around 20% to 25% of the world's oil supply, is closed, and prices have shot up. In September, overall energy rose 20.4% year over year, with gasoline up 34.2% and fuel oil up 74.2%.
Inflation briefly cooled in July and August, when the CPI-W rose 3.4% and 3.5%, respectively. With renewed geopolitical conflict, however, it accelerated again in September.
How the 3.6% figure is calculated
Social Security sets the COLA from third-quarter figures, using July, August and September. It takes the Q3 CPI-W average, compares it to the previous year's average, and rounds the percentage increase to the nearest one-tenth of a percent. This year's CPI-W average was 3.62% higher than in 2025, resulting in the 3.6% COLA for 2027.
Recipients can now begin planning their 2027 budgets. The COLA likely won't cancel out inflation 1:1.
Source: The Motley Fool
Trading involves risk.
Risk Disclaimer
