Each month, millions of older Americans receive benefits from Social Security, which often serve as their main source of income. This makes the cost-of-living adjustments (COLAs) provided by Social Security crucial for many retirees.
Without automatic COLAs, seniors reliant on Social Security might see their monthly benefits remain unchanged year after year. This stagnation would lead to a decline in purchasing power for those without other income sources. To prevent this, the Social Security Administration (SSA) implemented automatic COLAs in 1975.
As the year progresses, many Social Security beneficiaries are keen to learn about the upcoming year’s COLA. Unfortunately, it’s still too early to provide a definitive answer.
The reason for this delay is that Social Security COLAs are determined by the third-quarter changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Since September has yet to conclude, the CPI-W reading for the month won’t be available until October. Therefore, seniors must wait until October 10 when the official COLA is announced.
However, with the current inflation data, a preliminary estimate for the 2025 COLA can be made. With August’s CPI-W figures now available, experts have offered a new COLA forecast for the upcoming year. The news is a mix of positives and negatives.
Seniors Should Prepare for a Smaller COLA in 2025
According to August’s CPI-W data, the nonpartisan Senior Citizens League anticipates a 2.5% Social Security COLA for 2025. This is slightly lower than their previous estimate of 2.57% and below the 3.2% COLA awarded at the start of 2024.
Initially, news of a potentially smaller COLA might seem disheartening. However, there are important considerations to take into account.
Firstly, the 2.5% figure is merely an estimate; it’s not finalized. As previously noted, a precise Social Security COLA calculation requires a complete set of inflation data.
Furthermore, a reduced Social Security COLA suggests a decrease in inflation. For retirees relying heavily on Social Security, this can be a welcome relief.
If prices for essentials like groceries and gas aren’t climbing as rapidly, Social Security benefits will stretch further. Thus, a 2.5% COLA isn’t inherently negative news.
Hold On Until October 10
The next CPI-W reading is expected on October 10. Following this, the SSA should release an official COLA announcement, ending the speculation.
It’s worthwhile to monitor the news section of the SSA’s website for updates on the 2025 COLA. For those planning financially for 2025, using the 2.5% estimate as a base is prudent, knowing it might adjust slightly in the coming weeks.
However, unless there’s a significant inflation shift soon, it’s reasonable to expect the official 2025 COLA to be close to 2.5%. This provides a guideline for making financial decisions.
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