Perhaps the most important government report for retirees is the monthly Consumer Price Index Summary from the U.S. Bureau of Labor Statistics. This report gives information on inflation from the month before.
Why is this relevant for individuals who have retired? One particular figure in the document is crucial for determining the yearly total. Adjustment to Social Security benefits based on changes in the cost of living. .
The inflation report for July was published by the BLS on Wednesday morning. Shortly after, an initial prediction for next year’s COLA was released. The most recent estimate for the 2025 Social Security COLA is discussed, highlighting both positive and negative implications for retirees.
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The most recent projection of the Social Security Cost of Living Adjustment (COLA) for the year 2025.
Following the release of its July report, BLS announced that the Consumer Price Index (CPI) dropped to below 3% for the first time in almost three and a half years. The July CPI stood at 2.9%, which was lower than the expected consensus of 3%.
Nonetheless, the Consumer Price Index for All Urban Consumers (CPI-U) is not relevant for determining the increase in Social Security benefits for retirees. Instead, the Social Security Administration (SSA) utilizes a different metric known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The CPI-U and the CPI-W typically move together. This was the case in July, as both measures of inflation increased by 0.1% compared to the previous month and by 2.9% compared to the same time last year.
Is a 2.9% cost-of-living adjustment (COLA) expected for Social Security beneficiaries next year? According to Mary Johnson, an independent analyst specializing in Social Security and Medicare policies, the projected benefit increase for 2025 is estimated to be 2.6% based on her model utilizing the monthly CPI-W data. (Johnson had previously forecasted a 2.7% increase in the prior month.)
Retirees have received both positive and negative updates.
A 2.6% cost-of-living adjustment (COLA) may be disappointing for certain retirees. Social Security benefits rose by 3.2% this year and surged by 8.7% in 2023. Those who consider the yearly COLA as an increase will perceive a lower adjustment negatively as a decline.
On the bright side, a reduced COLA in 2025 is actually beneficial for retired individuals. This is because it indicates that inflation is slowing down, allowing Social Security benefits to have a greater purchasing power.
Retirees can find some positive information in the July inflation report. The price of dining out rose by 0.2% compared to the previous month, marking a smaller increase compared to the last four months. Statista reveals that elderly individuals are more likely to dine out compared to younger generations.
In July, the medical-care index decreased by 0.2% following a 0.2% increase in June. Hospital service expenses dropped by 1.1% last month. These developments are advantageous for retirees as healthcare costs are usually a significant portion of their expenditure.
Nevertheless, there is an unavoidable downside to a Social Security COLA of 2.6%: Retirees will not see the increase in benefits until January 2025, while facing higher expenses this year.
Just a rough guess
It is crucial to keep in mind that we are discussing a projection of the 2025 Social Security COLA. The official figure will not be disclosed until the middle of October.
The Social Security Administration (SSA) utilizes the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data from the third quarters of 2023 and 2024 to determine the yearly Cost of Living Adjustment (COLA). The last monthly CPI-W value for the third quarter of 2024 will be published on October 10, 2024. The official COLA for Social Security benefits in 2025 is expected to be announced shortly thereafter.
