The projected Social Security Cost-Of-Living Adjustment (COLA) in 2025 appears, by far, to be the smallest increase in the last four years. In the process of tempering, inflation further cools off. The monthly retirement benefit for those already retired may grow with a gentler upward tilt than it has for the past two years.
About the estimated COLA for 2025
The latest projections from the Senior Citizens League, a nonpartisan seniors advocacy organization, peg the Social Security COLA for 2025 at 2.6%. That would be a big decline from beneficiaries’ 3.2% in 2024, far off the 8.7% adjustment in 2023 and the increase by 5.9% in 2022.
The expected 2.6% COLA for 2025 would be the smallest increase since 2021, when benefits went up by 1.3%. But that would still be in line with the average of previous increases over the last two decades.
What factors impact the COLA amount
Annual Social Security COLA is based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers. This is a measure tracking price changes of a selection of goods and services. The SSA takes the CPI-W measure for that in the third quarter of the current year and, as compared to the previous year, calculates the percentage increase.
It is true that the inflation is dropping, with critical drops in certain areas against their prices two years ago noted with the latest data from the Consumer Price Index for urban wage earners and clerical workers. For example, the price of fuel oil dropped 35.3%, while that of airline fares dropped by 19.4%, and those of gasoline dropped by 17.7%.
Impact on buying power of retirees
While a lower inflation rate theoretically means prices are rising at a slower rate, it really doesn’t ease the financial squeezes that many elder Americans are feeling. Chronically high prices for things like food, electricity, and housing are all pushing up the outgo for older Americans.
A recent AARP survey reported that over half of the adults 50 or over are concerned that they “will have enough money to be able to” retire, while 37% are concerned they will be able to afford basic needs. In addition to that, 70% are concerned that costs will increase at a faster rate compared to incomes.
Critics of the present COLA computation process
Some say that, truth be told, CPI-W by itself will never adequately capture the spending habits of a retiree specifically, one who allots a smaller share of income than what the elderly person may actually need to spend. Such an error could make real senior inflation appear to be more than 10% too low.
Some advocates, including those from the Senior Citizens League, recommend instead using the Consumer Price Index for the Elderly. However, some experts argue against changing the method of making the cost-of-living adjustments.
Some advocates, like the Senior Citizens League, recommend instead using the Consumer Price Index for the Elderly. However, some experts argue against changing the method of making the cost-of-living adjustments.
