You may be scheduled to receive a larger benefit increase than usual.
President Trump rescinds plan to levy tolls in Strait of Hormuz
President Donald Trump has scrapped plans to levy tolls in the Strait of Hormuz.
After a ceasefire was announced in June, the conflict in the Middle East continues again, with strikes resuming and US President Donald Trump reimposing a naval blockade. On July 13, oilprice.com reported:Prices have skyrocketed.”It was more than 8% after President Trump announced the lockdown.
Aside from near-term price increases, President Trump’s stance on the Strait of Hormuz and the seemingly inevitable rise in oil prices caused by the instability will likely have a trickle-down effect on Social Security benefits next year. Recipients are likely to receive the largest cost-of-living adjustment (COLA) in recent years. Although that’s not necessarily good news.
The relationship between price increases and annual COLAs
The annual COLA is based on the CPI-W, an inflation measure that tracks the cost of goods and services such as housing, food, and energy (including oil). However, not all CPI-W data is relevant. Social Security COLA calculations only include numbers for the third quarter (July, August, and September).
This is a three step process.
- Average of CPI-W data for the third quarter.
- Compare this year’s average to last year’s third quarter average.
- The next year’s COLA is the rate of increase (if the average is low, there is no COLA).
Now that lockdowns have resumed and oil prices have increased during the month used to calculate next year’s COLA, it is quite possible that the CPI-W average will be higher than normal for 2027’s COLA. Higher oil prices are reflected in gas pumps, but the need for transportation also drives up the cost of food and retail goods.
3.8% increase?
President Trump’s stance on Iran has reversed many times, and there is no reason to believe that this time will be any different. However, while in the past the US government has been able to tap into US reserves to keep oil prices relatively stable, it is now reported that reserves are at their lowest level since 1983.
Brent Crude Oil Wholesale Spot Oil Price Data by YCharts
This year’s COLA was 2.8%, but based on current inflation rates, the COLA in 2027 is on track to be at least 1 percentage point higher, according to the trusted advocacy group Senior Citizens Coalition. A COLA of 3.8% would be the third highest level in the past 10 years.
- 2026:2.8%
- 2025:2.5%
- 2024:3.2%
- 2023:8.7%
- 2022:5.9%
- 2021:1.3%
- 2020:1.6%
- 2019:2.8%
- 2018:2%
- 2017:0.3%
High COLAs sound good, but of course, they are a result of inflation. So even if things become more expensive, that means you can’t necessarily buy more things, even if your Social Security check is larger.
Any estimates regarding the 2027 COLA are only estimates. Official numbers won’t be known until CPI-W data for the entire third quarter is collected and the Social Security Administration makes its expected announcement on Oct. 14.
Because the annual COLA is more of a reactive measure, it does not necessarily help seniors address the inflation that they are currently experiencing and may continue to experience. However, it helps retain retirees some This will contribute to increasing purchasing power in the future.
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
