According to the most recent cost-of-living adjustment (COLA) predictions, Social Security payments will not increase as much as anticipated. As many beneficiaries and retirees feared, the latest COLA rise would not be as significant as predicted.
This is poor news for beneficiaries who rely on these payments to make ends meet, particularly those who rely only on Social Security checks. Gallup, a national polling firm, has surveyed seniors for 23 years to assess their reliance on Social Security benefits.
In more than two decades of yearly surveys, the proportion of seniors who rely on Social Security income to make ends meet has never fallen below 80%. In 2024, 88% of retirees said their Social Security benefit was a “major” or “minor” source of income.
The announcement of Social Security’s cost-of-living adjustment (COLA), scheduled for October 10 at 8:30 a.m. Eastern time, is the most anticipated of the year, which is not surprising given America’s top retirement program’s critical role in providing a financial foundation for the country’s aging workforce.
The COLA Increase on Social Security Benefits is not as Predicted
The Social Security Administration (SSA) employs COLA, a yearly adjustment mechanism, to account for price fluctuations in goods and services. If a senior’s normal purchases increase by 2%, 3%, or 5% in price, Social Security benefits should be adjusted to maintain purchasing power.
The annual cost-of-living adjustment attempts to keep recipients on track with inflation, helping them to remain competitive in the face of rising prices. From 1940 to 1974, Congress implemented arbitrary benefit adjustments during special sessions.
There were no COLAs throughout the 1940s, therefore 11 significant modifications were implemented between 1950 and 1974. Since 1975, the CPI-W has tracked inflation for Social Security, acting as an inflationary tether and setting the yearly COLA.
The CPI-W is a sophisticated tool, comprising over six main spending categories and a vast number of subcategories, each with its percentage weighting. These weightings allow the CPI-W to be reported monthly as a single, clear figure.
The most notable change is that the COLA calculation now only takes into account the trailing 12-month CPI-W data from July to September. Inflation has occurred, and benefits will increase if the average CPI-W measurement for the current year’s third quarter (July to September) exceeds the average reading for the same period last year.
The predicted rise is calculated using the year-over-year percentage increase in average third-quarter CPI-W readings, rounded to the closest tenth of a percent.
The Cost of Living Adjustment (COLA) for 2025 has Narrowed Substantially
The average COLA over the last 20 years has been a disappointing 2.6%. This period contains three years of deflation (lower prices) with no COLA (2010, 2011, and 2016) and the smallest positive COLA on record (0.3% in 2017).
However, the last three years have partially reversed the sluggish COLA trend. The 5.9% COLA in 2022, 8.7% COLA in 2023, and 3.2% COLA in 2024 reflect the current inflation rate’s fastest growth in four decades. Specifically, the 8.7% COLA in 2023 was the greatest percentage rise in 41 years.
The July and August inflation data from the Bureau of Labor Statistics have significantly decreased forecasts for the 2025 COLA.
Mary Johnson, an independent Social Security and Medicare policy analyst who just retired from TSCL, reduced her 2025 COLA prediction from 3.2% following April inflation data to 2.6% after the most recent report.
Despite starting from opposite locations, TSCL and Johnson now mostly agree that the 2025 COLA will be 2.6%. This percentage will enhance payments for approximately 68 million Social Security recipients, resulting in an additional $46.35 each check based on an average distribution of $1,782.74 in July 2024, however, this amount may vary depending on individual circumstances.
According to lagradaonline, TSCL and Johnson’s predictions are for a 2.6% cost-of-living adjustment, the smallest percentage rise in four years but still in line with the average COLA over the last two decades. What’s more amazing is that it would be the first time since 1997 that the Social Security COLA has been raised for four years in a row.
By the end of 2022, benefits will have climbed by more than 22% overall, assuming a 2.6% cost-of-living adjustment the following year. Although benefits are growing faster than they have in recent memory, which is great on paper, there are two unpleasant aspects of Social Security’s 2025 COLA.