Social Security recipients will receive an above-average boost beginning next year.
Social Security recipients will receive an above-average boost beginning next year.
We've finally reached arguably Social Security's most anticipated day: the announcement of the cost-of-living adjustment (COLA). The only other day that might compare is the day when the COLA actually kicks in in January.
Beginning next year, Social Security recipients will receive a 3.6% increase to their monthly benefits, 0.8% higher than this year's COLA. A high COLA can be a relief, but it doesn't come without high inflation, as the two unfortunately go hand in hand.
Let's take a look at how we got to this above-average COLA.
The inflation figure Social Security focuses on
The CPI-U is the country's main inflation figure, and in September, it was 3.7% from a year ago. However, Social Security uses the CPI-W to calculate the annual COLA. It's an inflation metric centered on the expenses of hourly wage earners and clerical (administrative) workers, covering about 30% of the total U.S. population.
In September, the CPI-W rose 3.9% from last year, its second-largest year-over-year increase this year, behind May's 4.4% jump.
The difference between the CPI-U and CPI-W figures comes down to the weight they give to different expenses, with the CPI-W giving more weight to expenses like rent, transportation, food and beverages, apparel, and fuels and utilities. The CPI-W has been higher than the CPI-U every month since April (they were the same in March).
How inflation has led to the 2027 COLA
The 2027 COLA is the fifth-largest in the past 35 years. This historically high COLA largely reflects rising energy prices amid the conflict in the Middle East. With the closure of the Strait of Hormuz -- the route for around 20% to 25% of the world's oil supply -- prices have shot up. In September alone, here's how much different energy expenses jumped year over year:
Averytin News Financial update.