At a glance
- Proposals to fix the program's finances could change how that inflation adjustment is calculated.
- Experts expect the trust funds to be depleted within six years, and absent legislation, benefits could fall about 26%.
- For advisors, the 3.6% figure feeds directly into retirement cash-flow models and claiming decisions because COLA assumptions compound across a 20- to 30-year retirement.
Social Security's 2027 cost-of-living adjustment will be 3.6%, up from 2.8% this year and worth roughly $75 a month more for the average beneficiary, according to Morningstar Financial Advice.
Proposals to fix the program's finances could change how that inflation adjustment is calculated. The adjustment is set by a formula tied to a subset of the consumer price index. One floated idea is a flat-rate COLA drawn from a 1987 proposal by former Rep. Tim Penny, a Minnesota Democrat. Under that approach, the rate would be set at the highest benefit paid to a recipient in the 20th percentile, so 80% of beneficiaries would receive a smaller adjustment, Rich Johnson, a vice president of financial security at AARP, said.
Experts expect the trust funds to be depleted within six years, and absent legislation, benefits could fall about 26%.
For advisors, the 3.6% figure feeds directly into retirement cash-flow models and claiming decisions because COLA assumptions compound across a 20- to 30-year retirement. Under a flat-rate formula, projections that assume benefits track inflation would overstate lifetime income for clients whose benefits sit above the 20th-percentile benchmark.
Reported by the Tax & estate planning desk from Morningstar — Financial Advice. Published . Corrections