What Does the Social Security COLA Tell You?

Becca HartwellOkay, so you got a raise this year. You felt great about it for roughly one pay period, and then groceries happened. Every time. Meanwhile, Social Security is about to get its own raise. Did yours keep up with theirs? Hold on. I'm not collecting Social Security for decades. Why should I care what a retiree's raise looks like? Because it's the most public inflation scoreboard of the year. One number announced for everybody with no spin from your boss. No spin? I like that. My boss's spin is, "We value you." Ha. Your boss says value, the scoreboard says percent. Fine. I'm listening. When does the scoreboard light up? October 14th, right after the September CPI comes out. That's when the Social Security Administration announces the 2027 cost of living adjustment. And the number? Forecasters expect roughly three point five percent. This year's was two point eight. Oh, that's a nice jump. So retirees are getting rich? Plot twist. The headline number is not the number that lands in a check. We're Becca and Maya, and this is Money Unlocked, and we're gonna show you where the gap hides. Wait for it. I bet it's a bill. Oh, you're gonna love this. First, where that three point five percent comes from. Okay, so get this. The window that decides the raise has already slammed shut. A 24/7 Wall St piece from early October said the three-month stretch of inflation data behind next year's check closed with the end of September. Closed? So it's done? The measuring is done. The number isn't official until the Social Security Administration says it. Hold on. If the data's in, why is everybody still saying forecast? Because forecasters were working from August. After the August report, estimates for the 2027 raise ran from three point four percent to three point six percent. Fox Business laid that out, and the 2026 raise they were comparing against was the two point eight percent we mentioned. Huh, so it's a range, not a guess pulled out of a hat. Right, and here's the detail I like. August CPI-W was up three point five percent from a year ago. Overall CPI, the one you see on the news, was up three point four percent. Wait, two different inflation numbers? Okay, I need the dummy version of CPI-W. Fair. Our brief says the formula runs on CPI-W, and I'm not going to invent a recipe beyond that. In plain terms, it's a price tracker, a cousin of the inflation number everyone quotes, and it's the one Social Security uses. So it's a scoreboard, just not the scoreboard on TV. Exactly, and that's where people trip. Let me guess. They think the raise matches their own grocery bill. Bingo. Your rent jumped, your car insurance went nuts, and you assume the COLA must cover that. It doesn't know you. It's one measure for everybody. Which is a little insulting, honestly. My coffee habit deserves its own index. Your coffee habit has a better index than most of us have. Okay, but why do people make that mistake? Because a percentage feels personal. Three and a half percent sounds like it's about you. It's about the average, and your life is not the average. So the same month can give you two different inflation numbers, three point five and three point four, and neither one is lying to me. Same month, same economy, two readings. I won't pretend to know the guts of why they differ. I only know the Social Security one is the CPI-W. That's a surprisingly honest "I don't know" for a podcast. I'd rather say that than make up a recipe on air. So the COLA is one average measure. My own inflation could run higher or lower depending on what I actually buy. Think of it like a weather report for the whole region. Useful, but it won't tell you whether your street flooded. Mm. So what do I do with it? This week, dig out your last raise. Find the actual percentage from your pay stub or the email your boss sent, just that one number. You'll want it next to the COLA. Easy enough, and then we compare. We do. But before that, a warning. So the number is three point five percent. Now, where does some of it go? Oh, you mean the part that never reaches the check. Okay, so the raise has a roommate. It's called Medicare Part B, and it moves in before the check ever arrives. Oh, no. Rent? Kind of. The 2026 Medicare Trustees Report projects a standard Part B premium of two hundred and nine dollars and fifty cents a month for 2027. That's up from two hundred and two dollars, ninety cents this year. Hold on. I'll do the math out loud because I don't trust anything I can't do on a napkin. Napkin's ready. Two oh nine fifty minus two oh two ninety. That's six dollars and sixty cents more every month. And the page I'm reading calls that about three point two five percent. Which sounds tiny. Six sixty, that's a fancy coffee. Your coffee habit again. It's a lifestyle. But here's the part that bugs me. The premium rise doesn't come out of some separate pocket. It comes out of the raise. So a slice of the increase is gone before anyone spends it. Right. Taxpayers.net walks through exactly that, how the premium eats into the COLA. Let me make up a number, and I'm labeling it hypothetical because I don't know anybody's actual check. Say a raise lands at a hundred dollars a month. Hypothetical 100. Then the six 60 premium increase is the part of that 100 that's already spoken for. You don't see 100. In this made-up example, you see 9340, and notice that's a dollar share, not a percentage. Six sixty is a big bite out of a small raise and a smaller bite out of a bigger one. So the smaller the raise, the more the premium matters. Wait for it, though. Is that number locked? No. That's the catch, right? Right. It's a projection. CMS sets the binding figure around mid-November, and the source says it can land above or below. So it could come in lower, fingers crossed. Or higher. Plot twist, nobody gets to pick. Okay, and the common mistake here is so human. You hear three-point-something percent, and you picture that percent in your account. Everyone does it. Because the headline is the only number anyone shouts. The premium shows up quietly in a letter. Mm. So this week, put mid-November on your calendar. That's when the real premium shows up. And you can actually do something with that. Check the figure when it lands instead of trusting the projection. Because if it lands higher, the bite gets bigger and the raise gets thinner. If it lands lower, I get a little back. Right. And only the real number counts, so don't build a budget on the projection. Which brings it back to you, doesn't it? If the official raise gets nibbled before it hits the check, what happened to yours? Switching gears. That's the turn. What this scoreboard says about your paycheck. Okay, so we've watched a raise get shaved by something that doesn't ask permission. Sit with that for a second. Sitting, and I'm already suspicious of my own paycheck. Right? Because the Medicare cost moves on its own schedule. Nobody consulted the retiree. It just shows up, takes its slice, and the raise gets a little thinner. Okay, but that's a retiree problem. I'm 30-something with a laptop and a questionable plant collection. Oh, you're gonna love this part. What if your raise has the same kind of problem? Meaning what exactly? Meaning there might be a cost in your life that also moves on its own, and it quietly trims whatever your boss handed you. Hold on. You're talking about health insurance. I'm asking about it. We did a whole episode last week on why that bill climbs, so I'm not gonna redo it here. Fair. Nobody needs me to relive that. But think about the shape of it. Social Security gets a headline number, a big announcement. Everybody nods. Then a separate cost takes a bite out of it. And the headline never mentions the bite. Never. It's the movie trailer of money. All the good scenes, none of the part where the car gets towed. The car gets towed in act two. Every time. So here's the question I can't shake. When your boss says you got a raise, what are you actually comparing it to? Honestly, nothing. I see the bigger number, I feel good, and I go buy the nice olive oil. The nice olive oil. Respect. But wait. If I'm being the skeptic here, a raise is a raise. Somebody gave me more money. Isn't that just good news? It might be. That's the point. You don't know until you check what happened to the stuff around it. Huh. So the COLA is basically a demo. A demo, yes. Look at what happens to a raise when something else in the budget moves on its own, and then ask whether your own paycheck is playing the same game. Okay, so what kind of costs are we talking about, besides the one we already agreed not to relive? Ask which of your costs get to set their own price. Rent changes when the lease says so. Some deductions can shift on a schedule you didn't pick, and your raise shows up whenever your boss gets around to it. That's several clocks, and nobody synchronized them. So a raise could be racing something that never stopped running. Or it could be doing fine. The point is you only find out by laying them side by side. And the pay stub part, I assume the number my boss said out loud is not the number I actually see? Right. The number in the announcement is before deductions. The stub is closer to the real thing. Reading a raise net means asking what actually lands in the account, not what got announced at the meeting. Which means I'd have to actually look at my pay stub, like with my eyes? With your eyes. Maybe a snack nearby for courage. Okay, I'm in. Where do I even start? So here is how to run that test on your own raise. Okay, so get this. Pull out your last pay stub, not the offer letter, the stub. Find the percentage your last raise gave you. And if I can't find it? Then your payroll portal has it or your manager does. Five minutes tops. Fine. Say I got a three percent raise. Great. And everything from here is hypothetical, so don't go quoting my math to your landlord. You make a hypothetical $50,000. Three percent is 1,500 a year. Which sounds lovely until my lease renews. Exactly where I was headed. Step two, put your own cost increases next to it. Say rent goes up a hypothetical $100 a month. That's 1,200 a year gone before you've even bought groceries. Oh, man, so 300 bucks of raise left. And we haven't touched insurance yet. Wait, hold on. Is that where the common mistake lives? Right in there. People count the raise before payroll takes its cut. That 1,500 is gross. Taxes and your insurance deductions come out of it, so the raise that shows up in your account is smaller than the one your boss announced. Dude, why does everybody do that? I do that. Because the percentage is the part somebody says out loud. Nobody announces the deductions at the celebration. Nobody throws a party for withholding. So here's a quick habit. Put the raise in two columns, before payroll and after. The after column is the one you can actually spend. Two columns. I can handle two columns. That's basically a menu. So step three, compare your raise to the COLA, the Social Security raise. The brief for this episode calls it the most public inflation scoreboard of the year, and it asks whether your own raise kept up. So the COLA is the yardstick. One yardstick, as we said, but it's the one everybody can see. If your raise came in under it, your pay lost ground against prices, at least by that measure. And if you beat it, but rent ate the difference? Then you beat the scoreboard and still lost your own game. Both comparisons matter. Ouch. Okay, so what's the action? This week, three numbers on one sheet of paper, your raise percentage, the COLA once it's out, and your own biggest cost increases. Then circle the one that won. And if the paper says you're behind? Then that's your next conversation with your boss or your next job search. Better to learn it from a napkin than from an overdraft. Napkin math, I respect it. But all of this is about this year's check. You and I are decades from collecting anything. Which brings up the big long-term question, will the program even be there when we are? Okay, so you've got your raise test on one sheet. Now the scary question hiding behind it. Maya, you're 30-something. Do you think about whether the checks will even exist? Constantly. Usually at 2 AM. Usually while avoiding my own spreadsheet. Same. So here's the actual number. AARP summarized the trustees' report from June 9th, 2026, and the combined trust funds are projected to run dry in 2034. Wait, 2034? That's not far, and it's the same year as last year's estimate. No new bad news. No rescue either. Okay, but run dry sounds like the checks stop. Do they? No. Without Congress doing anything, incoming revenue would still cover about 83% of scheduled benefits. 83 cents on the dollar. Where does that money come from if the fund is empty? Payroll taxes. That's the link. The tax comes out of workers' paychecks, and it flows to current retirees. The trust fund is the cushion when that flow falls short. Huh. So the cushion runs out, but the paycheck deductions keep coming. Exactly. And CNBC reported that benefits would be cut, not stopped. That's the word to hold onto. Cut by how much, though? Because cut could mean a latte or a car payment. CNBC cited research from CRFB putting the average monthly cut around $500. Oh, 500 a month? Oh, man. Average, so yours could land differently. And there's a wrinkle. The retirement only fund, called OASI, is projected to run out in late 2032. Earlier than 2032. Why? CNBC links that earlier date to how the 2025 tax law affects taxation of benefits. Plot twist, a tax change shifted the clock. So which date do I actually plan around? 2032 or 2034? Neither one is a promise. They're both projections, and the gap between them is a reminder that dates move when the rules move. That's another reason a cushion beats a countdown. Hold on. All of this is a projection, right? Congress could change it. Right. It depends on Congress, which is why the common mistake runs in both directions. Both directions? Some people hear 2034 and decide it's all going to zero, so why bother? Others hear Congress will fix it and assume nothing changes. Both treat a projection like a certainty. I've been the first one. Very dramatic about it, too. I believe it. So what do you actually do with that? Plan with a cushion. Build your estimate assuming you get less than the statement says, and count on a cut, not on zero. If the benefit shows up in full, that's a bonus. Bonus money. I like that better than dread. In practice, a cushion means your plan still works at the lower number. If you'd need the full benefit just to cover the basics, that's a plan with no room in it. Okay, but I'm 30-something. Doesn't a cushion that big feel like giving up my whole present to protect my future? It doesn't have to. A cushion just means you stop leaning your whole weight on one number. You can start small, and the habit matters more than the size. So it's less panic, more padding. Padding you control, which is more than you can say about Congress. Ha. Fair. Then the savings I add myself can fill whatever gap is left, and that's about the right amount of worried. So that cushion has a home, and it's your own account. The program is a floor you build on, not a whole house. A floor. I like that better than my usual mental picture, which is a leaky roof. Fair. But think about what you can't control here. Congress, the CPI, the premium, all of it moves without asking you. Whereas your own contribution? Yours. You set it. You raise it. You can bump it the day a raise shows up, before it ever gets used to your lifestyle. Oh, that's sneaky, in a good way. So here's the one action for the week. Two things, 10 minutes. Log into your Social Security account and look at your statement, the earnings record, and the estimate. If you want a planning figure, write the estimate next to roughly 80% of it. That's our own rule of thumb, rounded down for a cushion, because a wrong earnings year is a wrong estimate. Nobody's gonna catch that for you. Exactly. Then open your retirement account and look at the contribution line. Is it the same number it was two raises ago? Ouch. Mine might be. Mine too, honestly. So write that contribution down next to your last raise percentage. If the raise went up and the contribution didn't, that's the gap to close, and it's yours to close. 10 minutes, two screens, and you'll know more about where you stand than most people do. Short version of the whole episode, the headline number is never the number that lands in your hand. And you already have your one thing for the week from us. 10 minutes tops. Less if you don't alphabetize your drawers. Some of us have a system, Maya. Becca, your system is a pile with a nice label on it. Fair. The pile has been very loyal to me. If you know someone in the same boat, a friend who just got a raise and is feeling rich, send them this episode gently before they book the trip. And hit follow because new episodes drop every Tuesday. See you then. Check the statement before you check the pile. Ugh, rude. Accurate. Bye, everybody.