As the US economy adjusts after a spell of significant inflation, retirees and Social Security beneficiaries have their fingers crossed as they anticipate what the 2025 cost-of-living adjustment (COLA) might actually bring. Presently, from the look of things, while this year’s increase is expected to be far less compared to the huge jump seen in 2023, it is, however, going to be a pretty meaningful increase and hence an adjustment that can help to cushion the current rising living costs.
Projected 2025 COLA estimate
The latest projections peg COLA now at about 2.7% for Social Security in 2025. That is per-centage points lower than projected by Mary Johnson, an independent Social Security and Medicare policy analyst, in June.
A nonpartisan organization that monitors and computes COLA projections is The Senior Citizens League. This organization also published its latest prediction. This organization projects that for 2025, the COLA will be 2.63%, and this is an uptick from the latest prior one of 2.57%.
Recent COLAs Comparison
The projected 2025 COLA of 2.7% is markedly lower than the whopping 8.7% increase that occurred in 2023, which was the largest tweak since 1981, but still translates to higher than 2024 levels of 3.2%.
According to the Senior Citizens League, the 20-year rolling average for COLA is about 2.6%. While the 2025 prediction is comfortably in that band, please remember that the actual COLA adjustment for will be announced in October 2024 and will be based on the average inflation rate for July, August, and September.
Thanks to that projected 2.7% COLA, the average Social Security beneficiary might expect at least some increase to the size of that monthly payment, yet actual amounts, on an individual level, are no doubt bound to differ significantly because not everyone receives the same current benefit amount.
Let’s say a retiree is currently receiving $1,500 per month; in that case, a 2.7% COLA would mean an increase of $40.50 a month to $1,540.50.
Inasmuch as it may be noted at this point that COLA is a tool to protect the purchasing power of the people with regards to inflation, how it indeed affects the purchasing power of an individual may vary from individual to individual because it hinges on what level the prices of significant spending categories rise.
The COLA estimate depends essentially on the changes that have occurred in Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) indices. CPI-W measures the average price change accrued on goods and services paid for by urban wage earners and clerical workers in a standard basket of consumed commodities.
Indeed, the latest CPI-W data shows that despite broader-based inflation cooling, with the 12-month rate arresting at 3% as of June, prices for some indispensable items are clocking an increase faster than the general inflation rate. Foods, shelter, electricity, and medical services, to name a few, are screaming up, pressurizing retirees’ budgets.
Implications for retirees and policymakers
This really testifies that ongoing retirees and Social Security beneficiaries face continued struggles; even though the 2025 COLA might allow for a small relief relative to record-high prices for basic goods and services, it will remain woefully insufficient to serve as anything of a buffer.
This goes to support the point that there really must be constant discussion over the adequacy of Social Security benefits and the possible need for enhancement to keep the program afloat in the long run. Policymakers and stakeholders will have to take the needs of retirees into concern and how anything proposed on reforming the Social Security system will affect them financially.
