Inflation presents an intricate situation for individuals receiving Social Security benefits. When inflation rises, it reduces the purchasing power of seniors living on a fixed income. However, this also results in an increase in the cost-of-living adjustment (COLA) that will raise Social Security payments for the next year. When inflation decreases, it becomes easier to manage expenses, but this results in a reduced COLA for the next year. That’s the outlook for 2025.
Even though it’s only the beginning of 2024, the current inflation patterns might result in a reduced Social Security COLA for the upcoming year. According to the Senior Citizens League (TSCL), a nonpartisan seniors advocacy group, the 2025 COLA is estimated to be 1.75% based on the January inflation report from the US Bureau of Labor Statistics.
According to the data released this week, there was a 2.9% increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in January compared to the same month last year. That index is utilized to calculate the yearly COLA raise.
The estimated percentage of 2.9 is subject to change as the year progresses. However, if inflation remains stable or decreases further, it is highly likely that the 2025 COLA will be lower than the 3.2% adjustment this year and significantly lower than the 8.7% COLA given in 2022.
2025 Social Security COLA
As mentioned in a Feb. 13 press release, the COLA is calculated based on the average rate of inflation during the third quarter, which is then compared to the inflation rate from the previous year’s third quarter.
In other words, a lot may change in the next eight months of data, according to Mary Johnson, TSCL’s Social Security and Medicare policy analyst.
Currently, TSCL’s 2025 COLA estimate exceeds the forecast of 2.5% issued by the Congressional Budget Office for next year.
Although Johnson noted that the CBO’s approach differs from TSCL’s, it is evident that inflation rates are anticipated to decline from their levels in 2023 and that the COLA for 2025 would also be lower.
