High inflation is nobody’s idea of good news, but it is a fact of life — and right now, it’s hitting especially hard. Energy prices have surged more than 40% over the past year, and the overall annual rate of inflation is above 4%.
For retirees, Social Security is one of the most powerful tools you have to deal with inflation. Your retirement benefit is adjusted every year to keep pace with rising prices. That’s a guaranteed increase any year there is inflation. Your 401(k) and IRA don’t come with a guaranteed inflation adjustment, and most pension payments don’t rise with inflation either.
We won’t know the official Cost-of-Living Adjustment (COLA) for 2027 Social Security benefits until October, but current estimates suggest the adjustment might be above 4.5%. The government calculates the adjustment by comparing inflation data from the third quarter of each year to the same period a year earlier. I will let you know in October what the actual adjustment is for next year.
That inflation protection built into Social Security is another reason why I always encourage those of you nearing retirement – and in good health – to consider delaying when you start collecting your benefit. For anyone born in 1960 or later, starting at age 62 means accepting a permanent 30% reduction from the full benefit available at age 67. By waiting, you lock in a larger monthly benefit, which means a larger dollar increase from every annual COLA. (Waiting until age 70 increases your full retirement age benefit by an additional 24%.)
One thing I want you to understand: you don’t have to be collecting to benefit from those annual adjustments. Starting at age 62, the Social Security Administration applies each year’s COLA to your benefit record. When you do start collecting your benefit, those increases have been added to your benefit. And once you start collecting, the annual adjustments continue for the rest of your life.
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