A new estimate shows that Social Security checks are expected to increase by 3.7% next year, based on the June consumer inflation report.
The cost-of-living adjustment of 3.7% is a full percentage point below last month’s estimate as inflation eased in June, largely due to lower gasoline prices. Overall annual consumer prices rose 3.5% in June, down sharply from 4.2% in May. Excluding the volatile energy and food sectors, the headline rate was 2.6%.
Analysts say such a large decline in inflation in June is welcome but unusual. He said whether the moderation in inflation will continue or not remains to be seen. And most, if not all, of the COLA increase will likely be swallowed up by expected increases in Medicare and drug costs, he said.
“This is a significant decline in inflation, and we have rarely seen that in June (inflation) data in the last five years,” said Mary Johnson, a Social Security and Medicare analyst who tracks and calculates the COLA estimate. “The only time that inflation declined was in the month of June, and not by this amount. With oil prices being impacted by the ongoing tensions with Iran in the Strait of Hormuz, it is not clear whether this decline in inflation will be sustained.”
How much would a 3.7% COLA mean for Social Security recipients?
Johnson calculated that a Social Security COLA of 3.7% would increase the average $2,000 benefit by $74 per month.
According to the Social Security Administration, a 2.8% COLA increase for 2026 would increase the average retiree’s check by about $56 per month.
Would a 3.7% COLA be considered a big increase?
SSA data shows the 3.7% increase would be the largest since 2022, when the COLA was 8.7%. Inflation reached its highest level in 40 years in 2022.
Will the 3.7% COLA boost cover Medicare premium increases in 2027?
The base Medicare Part B premium, or the amount paid by individuals making less than $109,000 and joint filers making less than $218,000, is expected to rise to $209.50 in 2027 from $202.90 last year, according to a recent estimate in the 2026 Medicare Trustees Report.
“This will be a smaller-than-average increase in Part B, which has averaged 5.4% per year over the past decade,” Johnson said. “While the increase in Part B may be welcomed, many Medicare beneficiaries may find other Medicare costs too high, including the Part D deductible rising to $700 in 2027.”
How is the final COLA calculated and when will it be announced?
The Social Security Administration bases its COLA each year on the average annual increase in the Consumer Price Index for urban wage earners and clerical workers (CPI-W) from July to September. However, “these monthly check-ins can provide a glimpse of what the actual inflation data for the third quarter reflects, and can be useful in making retirement financial decisions like renewing a CD or budgeting,” Johnson said.
The index for urban wage earners broadly mirrors the broader index released each month by the Department of Labor, although there are sometimes slight variations. Last month, the overall consumer price index rose 3.5% and the urban wage earners index rose by the same amount.
The final COLA for the following year is usually announced in October.
Medora Lee is the money, markets and personal finance reporter at USA TODAY. You can reach him at (email protected) and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.