We’re only three months away from October, the month when Social Security cost-of-living adjustments (COLAs) for the following year are normally announced. Based on the rate of inflation, the Senior Citizens League predicts that Social Security’s 2027 COLA will be 3.9%.

Here’s what that means for you

Every retiree, disabled worker, and survivor who receives benefits will see the same percentage increase, even though the dollar amount varies by the size of one’s current benefit. For example, if you currently receive a monthly benefit payment of $2,000, a 3.9% COLA increase would boost that amount to $2,078.

While any increase is nice, it’s important to remember that $2,078 is before taxes (if you owe taxes on benefits due to your combined annual income).

Image source: Getty Images.

Why COLAs aren’t purely good news

While COLAs are rarely considered bad news, they’re not always good news. Here’s why:

• They reflect a higher cost of living: What so many Social Security recipients find frustrating is that their COLA increase appears to disappear before they have a chance to enjoy it. COLAs are triggered when overall consumer prices rise, and overall consumer prices don’t stop rising once COLAs are announced. A larger COLA for 2027 simply mirrors higher inflation and means that you’re also paying more for housing, healthcare in retirement, and groceries.
• They may affect taxes and benefits: It’s possible that a larger-than-usual COLA will be just enough to push a recipient over an income threshold for taxation and affect eligibility for some income-based programs.
• They add strain to an already fragile program: Although Congress has recently begun to take seriously shoring up the Social Security trust fund, fear remains that it will run dry in 2032 and that benefits will be cut by 22%. A COLA in the upper 3% range worsens an already large long-term funding gap and brings the program closer to the brink.

How to make the most of your COLA — no matter what happens

Let’s say that you end up with an additional $50 per month after paying higher taxes, higher prices at the pump, and other recently increased expenses. While it may seem disappointing, there’s no reason you can’t make the most of it. For example,

• Tuck it away in a special interest-bearing account you can draw from to pay higher-than-expected healthcare costs or medical supplies.
• If you’re carrying any high-interest debt, use the money to chip away at the balance. No matter how much money you’re working with, using the debt snowball or avalanche method can help you pay off debt faster and cut down how much you pay in interest.
• Make small repairs around the house to save money in the long term. For example, if your home gets drafty in the winter, put the funds toward sealing windows and doors or adding insulation to the attic or basement.
• If you don’t need the money to pay bills, open a low-cost index fund or exchange-traded fund and let it grow.

No matter how much you end up with in 2027, it’s possible to put it to work for you.

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