High oil prices may affect 2027 forecast

Elevated oil prices may push up inflation in the coming months, which could lead to higher estimates for the 2027 Social Security cost-of-living adjustment.

“Geo/political tensions are driving up the price of oil right now which will continue to drive up my estimates of the COLA,” Mary Johnson, an independent Social Security and Medicare analyst, said via email.

Based on new government inflation data for February, the Social Security COLA may be 1.7% in 2027, according to Johnson. That’s up from Johnson’s estimate of 1.2% last month.

Separately, the Senior Citizens League, a non-partisan senior group, forecasts a 2.8% cost-of-living adjustment for 2027, unchanged from its estimate from last month.

The Social Security cost-of-living adjustment is an annual change to benefits to help monthly payments keep pace with inflation.

For 2026, about 75 million Social Security and Supplemental Security Income beneficiaries received a 2.8% cost-of-living adjustment. That prompted a $56-per-month increase to retirement benefits, on average, the Social Security Administration said in October. However, those increases may vary, particularly with annual increases to Medicare Part B premiums, which are typically deducted from monthly benefit checks.

Social Security COLAs have averaged about 3.1% in the past decade, according to the agency.

In some recent years, beneficiaries have seen much higher annual increases as inflation spiked following the Covid pandemic. In 2022 and 2023, the COLAs were 5.9% and 8.7%, respectively. Both increases were the highest in four decades at the time.

In the years since, the Social Security COLA increases have fallen closer to average.

The 12-month inflation rate rose 2.4%, according to consumer price index data for February released on Wednesday.

That data did not include recent oil shocks prompted by the Iran war. Gasoline fell 5.6% over the past 12 months, according to the February CPI data. However, March data will likely show a jump in those prices, which could in turn push up the 2027 COLA forecast, according to Johnson.

Retirees are already facing higher utility bills, as the costs of home heating oil, natural gas and electricity have risen, she said.

Tariff policies may also lead to higher consumer costs.

The Social Security COLA is calculated by comparing third-quarter inflation data for the current year to the previous year’s third-quarter data. If there is an increase from year to year, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, that determines the percentage of the COLA.

Consequently, the COLA can lag behind higher inflation, or be higher than the current pace of inflation.

The CPI-W increased 2.2% over the past 12 months as of February — lower than the 2.8% COLA for 2026.

Yet how inflation affects individuals and households varies depending on their spending habits, or personal inflation rate.

The COLA for the following year is typically announced by the Social Security Administration in October.