More than 71 million Americans receiving Social Security benefits will see a 3.6% cost-of-living adjustment beginning in January, the federal government announced Wednesday.
Monthly social security retirement benefits will increase by $75 on average, meaning the average beneficiary will pocket an extra $900 in 2027.
The higher-than-expected COLA reflects updated Consumer Price Index inflation data, which found a 3.9% increase in the inflation rate since last September.
Although the Social Security payroll tax will remain unchanged in 2027, the maximum amount of earnings subject to Social Security tax will rise from $184,500 to $192,300.
Due to the 3.6% benefits increase, the federal government will add about $56 billion to total Social Security spending next year, the Cato Institute estimates.
Social Security benefits are the federal government’s largest single annual expense, making up more than 22% of its annual spending and reaching an estimated 27% of the federal budget by 2036, according to the congressional Joint Economic Committee.
Even so, absent immediate major reforms, the Social Security trust fund will go insolvent in less than seven years. That will automatically trigger a 24% across-the-board benefit cut that would wipe out a decade’s worth of COLA increases.
Both government overspending and demographic trends play a part in hastening the approaching cliff. While U.S. population growth stagnates, America’s 65 years and older population is expected to increase from about 61 million in 2023 to about 77 million by 2035.
By that time, SSA estimates there will be only 2.4 workers contributing to Social Security and Medicare for each beneficiary.
Notably, the Social Security Administration has not guaranteed future benefits to Americans who are currently paying into the system.
The amount deducted from workers’ paychecks to subsidize the Social Security and Medicare of current retirees is “a pure and simple tax,” Stephen Goss, former chief actuary of SSA, told U.S. lawmakers in 2024.
Fiscal watchdogs like the Committee for a Responsible Federal Budget have suggested dozens of ways U.S. lawmakers could restore solvency and strengthen retirement security, such as transitioning to a flat benefit, slowing benefit growth for higher earners, or capping annual COLA rates for the top half of beneficiaries.
Yet Congress has not taken action.
U.S. citizens aged 65 and older are the most likely to participate in elections, with over 80% registered to vote and nearly 75% voting in 2024 – the highest share of any age group.
