Social Security Raises Could Shrink Under Four Proposed COLA Changes
Several proposals to close Social Security's funding gap would change how the annual cost-of-living adjustment (COLA) is calculated, MarketWatch reported in a piece by retirement reporter Alessandra Malito.
Each option would leave retirees with smaller yearly increases than the current formula.
The trust funds are expected to run dry within six years, MarketWatch said, and all beneficiaries could then face a benefit cut of about 26%. Congress has not yet seriously debated a fix.
What the 2027 Raise Delivers
Benefits will rise 3.6% in 2027, FinanceBuzz reported, using Social Security Administration data. That adds about $75 a month, lifting the average retired-worker benefit from $2,095 to $2,170. Networth.com covered the announcement of the increase earlier.
The Bureau of Labor Statistics put September 2026 consumer prices 3.7% higher than a year earlier, FinanceBuzz reported. The index tied to the COLA, the CPI-W (which tracks spending by working-age urban households), rose 3.9%.
Medicare Part B premiums, deducted from Social Security checks, are projected to climb $6.60 to $209.50 a month in 2027.
Four Ways to Change the Adjustment
The first is a flat-rate COLA, modeled on a 1987 proposal from former Rep. Tim Penny, a Minnesota Democrat.
It would apply the dollar increase received at the 20th percentile of beneficiaries to everyone, leaving 80% with a smaller adjustment, said Rich Johnson, vice president of financial security at the AARP Public Policy Institute.
Applied to January 2026, the 2.8% raise worked out to $58 a month for the average beneficiary. A flat rate would have paid $34, enough to cover 1.7% inflation.
The Committee for a Responsible Federal Budget estimates a 20th-percentile version enacted in 2027 would close half of the 75-year shortfall. A 30th-percentile version would close two-fifths.
The second is a cap on dollar increases. The committee's example sets a $900 cap in 2035, so a retiree who would have received a $1,000 COLA on $50,000 in benefits would get $900.
A cap at the 75th-percentile increase would close about 10% of the shortfall and save $115 billion over 10 years.
The third is a chained CPI, a formula that tracks how shoppers switch products when prices change. The Cato Institute estimates it would cut $188 billion in spending from 2027 to 2036 and close about 12% of the shortfall.
President Barack Obama included it in his 2014 budget before dropping it after pushback.
The fourth is a straight reduction of 0.5 or 1 percentage point. The Social Security Administration says a 1-point cut starting in December 2027 would eliminate 44% of the shortfall.
Who Would Feel It
"These cuts would continually take place year after year," Rich Johnson told MarketWatch. He said a flat rate adopted in 1998 would have cost the average beneficiary $78,000 over 28 years.
Newly retired people would lose more than current retirees because they have more years ahead, and younger workers would see lifetime benefits shrink.
Mary Johnson, an independent Social Security and Medicare analyst, said that "It is one of the only forms of retirement income we have that offers inflation adjustment," according to MarketWatch.
She noted that older Americans spend roughly twice as much on health care as younger urban workers.
About 14% of recipients 65 and older rely on Social Security for 90% or more of family income, according to a 2024 Census Bureau report cited by MarketWatch.
Financial planner Robert Conzo, chief executive of The Wealth Alliance, said retirees now lean on the program far more than it was designed for.