Social Security recipients will get a 3.6% raise in January , the largest in four years. Inflation drove it, and the retirement trust fund that pays the checks is projected to run short in late 2032.
The cost-of-living-adjustment (COLA) will reach about 72 million people and add an average of roughly $75 a month for retirees. The raise is up from 2.8% this year and is the largest since the 8.7% adjustment announced in 2022. It is 0.9 percentage points above what the Social Security trustees recently projected, according to the nonpartisan watchdog, the Committee for a Responsible Federal Budget.
The COLA tracks the Consumer Price Index for Urban Wage Earners and Clerical Workers, so a bigger raise means prices rose faster. In AARP’s COLA preview, vice president for financial security at the AARP Public Policy Institute Rich Johnson said many older adults rely on Social Security for most of their income. He said family budgets “have been under increasing pressure because of rising prices.”
Mary Johnson, an independent Social Security and Medicare policy analyst, was blunter in August, when her forecast was 3.4%. “We are in a brave new world of breathtakingly high prices and costs,” she told Money.
Medicare premiums could take part of the raise. The Part B premium comes out of the same check, and the 2027 amount has not been set. The Medicare trustees project $209.50, a $6.60 increase over this year’s monthly premium.
The raise is uneven
Because the COLA is a percentage, it pays more to people who already receive more. The CRFB calculated that 3.6% would raise average benefits by about $900 per retiree per year. It would raise benefits by more than $2,200 for the very richest beneficiaries per year. The highest-earning couples who retired this year at their normal retirement age would get a combined $3,600 a year increase. That would push their combined benefits above $100,000 a year.
The 2026 Trustees Report projects that the Old-Age and Survivors Insurance Trust Fund can pay full scheduled benefits only until the fourth quarter of 2032. After that, incoming revenue would cover 78% of scheduled benefits. If the retirement and disability funds were combined, reserves would last until the third quarter of 2034.
The CRFB said action is needed soon to prevent a 22% cut that “could wipe out the previous nine years’ worth of COLAs all at once in 2032.”
What the CRFB proposes
The think tank said lawmakers should consider reforming future COLAs. Its options are:
- Adopt the chained CPI, which it calls more accurate.
- Adopt a COLA cap that sets a dollar limit on the raise. This year’s cap would be roughly $1,200, adjusted for claiming age, which would change nothing for about three-quarters of beneficiaries.
- Set a six-figure limit on all benefits, including those of the wealthiest current beneficiaries.
- Adopt a flat-rate COLA that limits raises at the top and boosts them at the bottom.
The CRFB also said new or increased revenue and phased-in benefit reforms for future retirees should be on the table. It said, “Time is short, and policymakers should move quickly.” The SSA’s actuaries have scored similar options, including a chained CPI that would lower the COLA by about 0.3 percentage points on average.
Social Security Commissioner Frank Bisignano has rejected fears about the program’s future. He said it will “be around for another 90 years.”
Generative AI was used for research assistance and/or transcription of this article. The reporter independently reported and verified the factual claims in this article, and a human editor reviewed it before publication.