Social Security's 2027 COLA Could Be the Biggest Hike Since 2023

Social Security beneficiaries are on track for their largest cost-of-living adjustment since 2023, with two major advocacy groups projecting a hike of 3.5% to 3.6% for 2027.

The official number arrives next month. The Social Security Administration bases the annual COLA on the Consumer Price Index for Urban Wage Earners and Clerical Workers, and the September reading lands on Oct. 14. By extrapolating from recent months' data, advocacy groups already have a clear picture of what to expect.

The Senior Citizens League estimated the 2027 COLA at 3.5%. The AARP projected 3.6%. Either figure would mark a significant upgrade over 2026's COLA of 2.8% and the largest increase since 2023's 8.7% jump, when post-COVID inflation and supply shocks collided with Russia's 2022 invasion of Ukraine to spike energy prices.

This time, a different conflict is driving oil prices up: President Donald Trump's war on Iran. Mideast fighting, coupled with Ukraine's attacks on Russian refineries, has sent fuel prices higher. The price of diesel in the U.S. has topped $6.50 a gallon, rippling through anything that is shipped, harvested or manufactured with the critical industrial fuel.

The AI boom has created its own supply crunch for chips and other key technology inputs. Consumer electronics makers such as Apple have raised prices recently as costs climb.

Trump has not given up on his trade war either. Despite the Supreme Court striking down his duties under the International Emergency Economic Powers Act, he has used other laws to invoke new tariffs and hiked levies on Canada in July. Earlier this month, Congress gave Trump new authority to impose 100% tariffs on the top consumers of Russian energy.

Add in more expensive beef, insurance and utilities, and Social Security must pay out more so beneficiaries can keep up with their ever-growing bills.

The size of the check varies by state, even though every recipient gets the same percentage adjustment. Higher lifetime earners receive bigger checks, meaning their annual adjustments are bigger too.

Nationwide, the average monthly benefit for a retired worker is $2,071, according to the Social Security Administration. But the typical check in some states runs above the U.S. average.

By that measure, New Jersey retirees have the highest median Social Security check at $2,256 a month, according to a Motley Fool tally of Social Security data. Based on the 2027 COLA estimates, they should see about $79-$81 more per month, versus $72.49-$74.56 for the nationwide average.

New Jersey is followed by Connecticut ($2,249), Delaware ($2,225), New Hampshire ($2,215), Maryland ($2,181), Washington ($2,144), Michigan ($2,139), Minnesota ($2,135), Massachusetts ($2,121), and Utah ($2,090).

Wealthier retirees are already a major driving force in the U.S. economy, which has remained resilient despite repeated shocks.

Wall Street veteran Ed Yardeni has dubbed it the "G-shaped economy," arguing that the notion of a K-shaped economy divided by class obscures a trend divided by generations.

Helped by an extraordinary era of financial and economic gains, baby boomers now have a net worth of nearly $90 trillion, or about 52% of all U.S. household wealth. The Silent Generation holds another $20 trillion and is expected to pass much of that on to their boomer kids.

"The concentration of wealth among older generations suggests that consumer spending is increasingly being supported by the spending of accumulated retirement wealth rather than labor income," Yardeni explained in a note last month.

Boomers control about 54% of household stocks and mutual funds, worth close to $30 trillion, and own 41% of all household real estate, more than any other generation.

That is why boomers can keep spending briskly despite high interest rates and inflation, he said. Higher rates actually work in their favor, as investments in fixed-income products like Treasury bonds now yield more.

"This dynamic helps explain why higher interest rates have done less to restrain consumer spending than many economists anticipated," Yardeni added. "For a large segment of the population, rates are not simply a cost of borrowing. They are also a source of income and the reason that home prices are rising!"

With the official COLA figure due Oct. 14, a bigger adjustment would channel billions in additional benefits to retiree-heavy states, reinforcing the generational spending power that Yardeni says is holding up the U.S. economy.