Social Security can be described as a government program designed to provide financial assistance to individuals, primarily retirees, disabled persons, and survivors of deceased workers. serves as the foundation for numerous retirement plans. According to an analysis conducted by the Social Security Administration (SSA), the program’s monthly payments constitute over 50% of the total income for half of the households with individuals aged 65 and above.
That accounts for the yearly total adjustment for the cost of living The Cost-Of-Living Adjustment (COLA) included in Social Security is a crucial element for retirees when planning their budget for the upcoming year. The purpose of the COLA is to ensure that benefits remain in line with inflation has become an increasing difficulty for numerous older adults lately.
At the beginning of this month, the U.S. Bureau of Labor Statistics shared the initial data that will be used to calculate the 2025 Cost of Living Adjustment (COLA). Retirees who are anticipating a significant boost in their monthly payments may find next year’s benefit increase disappointing.
Here’s the current information and the reasons why the Cost of Living Adjustment (COLA) for next year might not meet the needs of many retirees.
Photo credit: Getty Images.
Here is a potential estimate for the Social Security cost-of-living adjustment (COLA) in 2025.
The yearly cost-of-living adjustment is determined by a gauge of inflation known as the CPI-W. This index tracks the rise in prices for a set of goods typically bought by urban wage earners and office workers. The Social Security Administration (SSA) examines the average CPI-W figures for the third quarter of the year (from July to September) and compares them to the figures from the same period in the previous year. The percentage growth between these two periods sets the COLA for the next year.
The Bureau of Labor Statistics published the July figures for the CPI-W on August 14. The data for August will be released on September 11, and the figures for September will be available on October 10. We will not know the official COLA until these final numbers are released.
The July Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was approximately in line with predictions, registering at 308.501. To put this in context, the average CPI-W for the third quarter of 2023 was 301.236. Should prices remain unchanged over the next two months, seniors can expect a cost-of-living adjustment (COLA) of only 2.4%.
Naturally, prices tend to keep rising because a modest level of inflation is beneficial for the economy. Should prices increase at a similar rate to last month, seniors can expect a 2.6% increase. However, if the CPI-W reading decreases to match the average of the past three months, seniors will see a 2.5% rise in benefits.
Therefore, older adults can anticipate a cost-of-living adjustment of 2.5% to 2.6% for the year 2025.
That falls significantly below the recent years’ adjustments for living expenses This year, seniors saw their monthly payments increase by 3.2%, following larger rises of 8.7% and 5.9% in the years before. These notable boosts in monthly benefits occurred during a period of high inflation. As inflation rates normalize, the cost-of-living adjustments (COLAs) are also returning to typical levels.
Nevertheless, a lot of older adults may feel that the 2025 cost-of-living adjustment doesn’t fully meet their requirements.
The expenses for seniors are increasing at a rate that surpasses their Cost of Living Adjustments (COLA).
Social Security typically relies on the CPI-W to gauge inflation, but the Bureau of Labor Statistics offers another index known as the CPI-E. This index tracks the rise in prices of goods and services based on the spending patterns of Americans aged 62 and above, who qualify for Social Security benefits.
In the past month, the CPI-E rose by 3.2% compared to the previous year, while the CPI-W increased by only 2.9%. This means that the expenses for seniors are rising more quickly than their Social Security payments. As a result, many could face a substantial budget deficit next year.
According to the nonpartisan Senior Citizens League, the purchasing power of the average Social Security benefit has decreased by 20% since 2010. If this trend persists into 2025, seniors will likely experience that their benefit increases will not meet their financial requirements.
A cost-of-living adjustment (COLA) ranging from 2.5% to 2.6% might not only be disappointing after three years of significant increases, but it could also fall short considering the actual living expenses seniors encounter today. The official figures will be released on October 10, but retirees should start planning now to make extra space in their budgets to cope with increasing costs.
