Think tank proposes capping Social Security benefits at $100,000
A Washington think tank has proposed capping annual Social Security benefits for married couples at $100,000 as a way to reduce a looming deficit in retirement trust funds.
There are still months until the Social Security Administration’s official release of the 2027 cost of living adjustment (COLA), but some experts are already predicting where next year’s adjustment will land.
The Alliance on Aging, a nongovernmental advocacy group, uses inflation data released monthly by the Bureau of Labor Statistics to predict future COLAs. The official release date will be in October, as it is based on third-quarter inflation data. But there is already some tough news for retirees.
Rising inflation is bad news for retirees
The Federation of Senior Citizens projects that the COLA in 2027 will be approximately 2.8%. This number has remained unchanged since January, when the organization predicted a 2027 COLA of 2.5%.
The good news for retirees is that next year’s adjustment is likely to be about the same as or even higher than the 2026 raise. The bad news is that it’s because inflation is surging again.
Consumer price index data released last week showed annual inflation at 3.3%, the highest level in two years, up 0.9% from last month. The main cause is the rise in crude oil prices due to the Iran war.
Rising oil prices do more than just increase the price of gasoline for consumers. Businesses are also being affected by the increased costs of transporting goods and manufacturing plastic products, fertilizers and other items that use petroleum to produce. All of these factors could lead to higher prices, and the longer the war in the Middle East drags on, the more likely it is that inflation will soar.
COLA is calculated based on inflation, so if costs increase, retirees are likely to receive a larger raise in 2027. But if history has shown us anything, it’s that that’s likely not enough.
COLA is consistently lacking
COLAs are designed to maintain the purchasing power of benefits over time, but have historically fallen short of what retirees need to survive.
Between 2010 and 2024, there were only five years in which COLA exceeded that year’s inflation rate, according to data from the National Federation of Senior Citizens. Even at a record high COLA of 5.9% in 2022, it fell short of the same year’s inflation rate of 7%.
Most retirees are also feeling the pinch. According to The Motley Fool’s annual Social Security COLA survey, 68% of beneficiaries say this year’s 2.8% adjustment will do little to cover their daily living expenses. With inflation trending upward again, even a slightly higher COLA may not provide retirees with the reprieve they need.
Retirees are also disproportionately affected by rapid inflation. Most seniors live on a fixed income, and the only wage increase they receive is a COLA. Housing and food also make up a significant portion of most retirees’ budgets, and these costs are especially high compared to many other expenses.
There may not be much retirees can do on their own to combat inflation. However, just by staying informed and keeping realistic expectations about how far your COLA will go, you can plan accordingly.
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