A Large 2027 Social Security COLA Could Come Back to Bite You in a Big Way

Seniors hoping for a large 2027 Social Security cost-of-living adjustment (COLA) may get their wish. Recent projections from The Senior Citizens League (TSCL) estimate the COLA will come in around 3.8%. That's above average compared to the last 50 years.

That's definitely more helpful to seniors today than a small COLA. But it comes with an unintended consequence that could hurt seniors in the long run.

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Money for COLAs has to come from somewhere

Social Security COLAs increase benefits, but they also increase the program's expenses. That wasn't a problem when Social Security was taking in more money from payroll and benefit taxes than it was paying out. But that hasn't been the case in a while.

Social Security's annual expenses have exceeded income since 2021, and it's exceeded non-interest income since 2010. Right now, the Social Security Administration is using the trust fund reserves to pay for what tax revenue can't, but this won't last forever.

The latest Social Security Trustees' Report estimates that the trust funds will be depleted in 2032. After that, all beneficiaries could see their checks decrease by 22% unless the government intervenes.

A large 2027 COLA could push up the timeline on possible benefit cuts by significantly increasing expenses. Fortunately, the government will almost certainly step in to prevent massive cuts.

What does the future look like for Social Security?

There's a lot we don't know about how Social Security will look in the future, starting with the 2027 COLA. The Social Security Administration won't announce this until mid-October. Once we know what the COLA will be, seniors will be able to estimate how much they'll get from the program next year.

The timeline for Social Security benefit cuts remains a moving target. It depends on future COLAs, how well projections of future expenses align with reality, and any new legislation that changes how Social Security works.

Expect to see Social Security's funding crisis get more attention over the next few years as Congress works to stave off the worst of the benefit cuts. Once it decides on a fix, you'll want to revisit your retirement plan and make changes, if necessary.

You may need to delay retirement if you're still working or cut back on expenses if Social Security benefits decrease in the future. But know that this isn't guaranteed. There are ways to avoid benefit cuts altogether, though we may have to wait a few years to learn if that's the path Washington chooses.