The Impact of Recent Decisions on Social Security Payments in 2027
Despite an average monthly income of just $2,079.49 for retired workers in the country, this sum is critical for helping retirees cover their basic needs. This income comes from the Social Security benefits that are currently supporting over 54.1 million retired workers. The most anticipated announcement for these beneficiaries is the annual cost-of-living adjustment (COLA), which is announced by the Social Security Administration in October each year.
Interestingly, for the second year in a row, the amount that Social Security beneficiaries receive each month in 2027 will be directly impacted by the actions of President Donald Trump.
Understanding Social Security's COLA
Before we delve into the specifics of how the President's policies will influence Social Security payments, it's crucial to understand what COLA is and how it is calculated.
Imagine a basket filled with hundreds of goods and services that seniors regularly purchase. If the combined cost of these items increases by 2% from the previous year, and the Social Security benefits remain the same, recipients would gradually lose their purchasing power. This is where COLA steps in. It is the almost yearly increase in benefits aimed at keeping recipients at pace with inflation, i.e., the rising prices.
For the past 51 years, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has been the measure used to calculate inflation. The CPI-W consists of over 200 spending categories, each with unique percentage weightings. These percentages are consolidated into a single figure each month to quickly assess if prices are collectively rising (inflation) or falling (deflation).
Although the U.S. Bureau of Labor Statistics reports the CPI-W monthly, only the average readings from the third quarter (July – September) of the past 12 months are used in the COLA calculation. If this year's average third-quarter CPI-W is higher than the same period in 2025, beneficiaries are due for a raise.
The increase in benefits is calculated based on the year-over-year percentage increase in average third-quarter CPI-W readings, rounded to the nearest tenth of a percent.
Another "Trump Bump" for Social Security Payouts
Last year, the average retired-worker benefit surpassed $2,000 for the first time since Social Security's inception, marking a historic moment for America's primary retirement program. Moreover, this year's 2.8% COLA marks the fifth consecutive year that benefits have risen by at least 2.5% - a feat that hasn't been achieved in three decades.
The noteworthy 2.8% raise beneficiaries received in 2026 was influenced by a "Trump bump." This was a result of Donald Trump's tariff and trade policy which increased prices on certain imported goods and domestic manufacturers, leading to inflation in the goods sector. Consequently, this led to higher Social Security checks for beneficiaries this year.
Early estimates for Social Security's 2027 COLA suggest that beneficiaries are likely to experience another Trump bump, but this time, it's not related to tariffs.
Following the President's orders, U.S. military forces, along with Israel, launched attacks on Iran. In response, Iran closed the Strait of Hormuz to virtually all oil shipping traffic, leading to the largest energy supply disruption in modern history.
As a result, crude oil prices have skyrocketed over the past seven weeks, with fuel prices following suit. This sudden surge in energy prices is starting to reflect in the monthly U.S. inflation report, significantly impacting the 2027 COLA forecasts.
According to estimates, the 2027 COLA is expected to be between 2.8% and 3.2%. If we consider the average of these two estimates (3%) as the base COLA case for 2027, the average retired-worker beneficiary would see their monthly payout increase by more than $62.
In contrast, the average worker with disabilities and the average survivor beneficiary would see their monthly checks each increase by approximately $49 in 2027.
Decades of Disappointment for Retirees
While Trump's actions are predicted to have a significant impact on Social Security benefits for the second consecutive year, a potentially larger raise for 2027 won't compensate for the decades of disappointment experienced by retirees.
Despite being designed to accurately reflect the impact of inflation on program recipients, the CPI-W has fallen short in this regard. The problem lies in the fact that the CPI-W tracks the spending habits of working-age Americans rather than senior citizens, who constitute 87% of Social Security's beneficiaries as of December 2024.
Retirees and working-age individuals have different spending habits, with seniors allocating a higher percentage of their budgets to shelter and medical care services. The CPI-W fails to account for the increased importance of these expense categories for retirees.
Furthermore, for three consecutive years, Social Security has been without its silver lining. Medicare's Part B premium, which covers outpatient services, has been rapidly increasing, leading to partial or even full offsets of annual COLAs.
According to estimates, the purchasing power of Social Security income has decreased by 20% from 2010 to 2024. A modest Trump bump in consecutive years isn't going to reverse decades of decreasing purchasing power.