There is a new cost-of-living adjustment (COLA) estimate, and the rise may come as a surprise to many retirees. A COLA is given to Social Security recipients every year to protect them against inflation and keep their benefits’ buying power.
The Senior Citizens League (TSCL), one of the biggest non-profits in the country that advocates for seniors, says that the purchasing power of benefits has gone down by 20% since 2010. A press statement from TSCL not long ago said that COLAs are less likely to keep up with inflation over time.
The new 2025 COLA forecast is lower than expected
Recent COLAs for Social Security recipients have been pretty high: 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024. This is a stark contrast. Before that, COLAs hadn’t been above 3% since 2012.
Two-thirds of people who use Social Security who were surveyed by TSCL said they thought the most recent COLA did not keep up with their rising costs of living. Because of this, a lot of old workers are having a hard time with money.
Some people (less than 50%) in Schroders’ 2024 U.S. Retirement Survey don’t think they will have enough money to live easily in retirement, and more than 90% are worried that inflation will make their savings worth less.
That being said, people who get Social Security may be shocked to learn that the Social Security Administration has lowered its COLA prediction for 2025 to 2.5%. This is the smallest raise since 2021. The most important things to remember about this point are listed below.
Social Security recipients will receive the lowest COLA since 2021
Social Security payments have been indexed every year since 1975 to account for changes in inflation during the third quarter of the year, which is July through September.
Cost-of-living adjustments (COLAs) are connected to the CPI-W, which is a part of the CPI. Simple math: divide the CPI-W for the third quarter of this year by the CPI-W for the third quarter of last year. The COLA for the next year is the percentage raise that you get.
This means that the Social Security Administration won’t be able to figure out the official COLA for 2025 until the September CPI-W data comes in, which won’t be until October 10, 2024.
Also, The Senior Citizens League (TSCL) thinks that benefits will go up by 2.5% in 2025, even though CPI-W inflation fell from 2.9% in January to 2.4% in August.
In 2021, the most recent COLA for Social Security payments that was less than 3% was given. A lower COLA is not the main problem, but it might scare seniors, especially those who are having trouble with money.
Social Security benefits might compromise purchasing power in 2025
The problem with 2025’s lower COLA is the way it was calculated. It uses the CPI-W to measure inflation based on how much office workers and hourly wage makers spend, who are usually younger than Social Security recipients.
The CPI-W doesn’t take into account the fact that recipients tend to spend more on housing and medical care than it should. This is hard to do because the CPI-W only went up 2.4% in August, but prices for housing and healthcare went up 4.3% and 3.3%, respectively.
In other words, there is above-average inflation in areas of spending that don’t get enough attention. This means that the CPI-W doesn’t give a true picture of how inflation will affect retirement.
We can make our case stronger by looking at the CPI-E, a part of the Consumer Price Index that tracks inflation based on how much people aged 62 and up spend and is more in line with what the average Social Security recipient spends.
The CPI-E grew by 2.9% in August, which is 0.5 percentage points more than the CPI-W’s growth of 2.4%. This means that the CPI-W is a rough way for retired workers to see how much inflation there is.
If things keep going the way they are, the 2025 COLA might be less than 0.5 percentage points. This would mean that Social Security payments will not be worth as much in 2019.
Some people don’t receive the full amount of money that other people do. We receive less and don’t get alot of food stamps. Some people only get $23 for food and some people don’t get anything. I don’t think that is fair for me or anyone else that is in this situation.
Hello Esther Delagarza,
23 usd is too low for basic need, government should increase the amount.
I am suffering day in day out trying to eat through the month by only getting this $23.00 per month for food and being on social security which is my only source of income.