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New estimates show Social Security checks will grow 3.7% next year, based on June’s Consumer Inflation Report.
The cost-of-living adjustment was 3.7%, one percentage point lower than expected last month, as inflation slowed in June, mainly due to lower gas prices. The overall annual consumer price inflation rate in June was 3.5%, significantly lower than May’s 4.2%. The core interest rate, which excludes the volatile energy and food sectors, was 2.6%.
Analysts say it is welcome but unusual for inflation to fall this much in June. It remains to be seen whether inflation will continue to slow, they said. And much, if not all, of the COLA increase will likely be swallowed up by expected increases in Medicare and drug costs, they said.
“This is a significant drop in inflation, something we have rarely seen in June (inflation) data over the past five years,” said Mary Johnson, a Social Security and Medicare analyst who tracks and calculates COLA estimates. “The only other time inflation fell this much was in June, but it wasn’t at this level. It’s unclear whether this drop in inflation will be sustainable, as ongoing tensions with Iran in the Strait of Hormuz are impacting oil prices.”
How much does a 3.7% COLA mean to Social Security recipients?
According to Johnson’s calculations, a 3.7% Social Security COLA would increase your average $2,000 benefit by $74 per month.
The 2.8% COLA increase in 2026 raised the average retired worker’s check by about $56 a month, according to the Social Security Administration.
Is 3.7% COLA considered a significant increase?
The 3.7% increase would be the largest since 2022, when the COLA was 8.7%, according to SSA data. In 2022, inflation reached its highest level in 40 years.
Will the 3.7% COLA increase cover the 2027 Medicare premium increase?
The base Medicare Part B premium, the amount paid by individuals with incomes less than $109,000 and joint filers with incomes less than $218,000, is expected to increase by about $6.60 (3.3%) to $209.50 in 2027 from $202.90 a year ago, according to recent estimates from the 2026 Medicare Administrative Board report.
“This will be lower than the average Part B increase rate, which has averaged 5.4% per year over the past 10 years,” Johnson said. “While the mitigation of the Part B increase is likely to be welcomed, many Medicare beneficiaries may find other Medicare costs much higher, including the Part D deductible, which increases by up to $700 in 2027.”
How is the final COLA calculated and when is it announced?
Each year, the Social Security Administration bases the COLA on the average annual increase in the Consumer Price Index for Urban Salary and Office Workers (CPI-W) from July through September. But “these monthly check-ins can give you a glimpse of what the actual inflation data is showing in the third quarter, which can help you make retirement financial decisions, like CD renewals and budgeting,” Johnson said.
The urban salaried index primarily reflects a broader index published monthly by the Department of Labor, but may vary slightly. Last month, the overall consumer price index rose by 3.5%, and the urban salaried index also happened to rise by the same amount.
The final COLA for the following year is usually announced in October.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
