Rosalind Evans
Social Security beneficiaries are anticipating the announcement of their annual cost-of-living adjustment (COLA) for 2025. However, the increase might not be as substantial as in previous years. Experts predict that the adjustment could be one of the smallest since 2021, raising concerns about how well it will address the financial needs of retirees facing lingering inflation.
A Smaller Increase Than Recent Years
According to Mary Johnson, an independent analyst specializing in Social Security and Medicare, the Social Security cost-of-living adjustment, or COLA, 2025 is projected to be around 2.5%. If this estimate holds, the average benefit for retired workers, currently $1,920 per month, would rise by only $48. “The benefit increase could be the lowest since 2021,” Johnson said. The official announcement of the COLA is expected to come from the Social Security Administration on Thursday.
Inflation’s Impact on Retirees’ Budgets
Although a 2.5% increase is expected, it pales compared to the adjustments seen in 2023 and 2022, which were 3.2% and 8.7%, respectively. These more significant adjustments were in response to record-high inflation. Despite a minor increase, many beneficiaries continue to feel the pressure of higher prices. Joe Elsasser, a certified financial planner and president of Covisum, highlighted this issue, stating, “It’s not like prices came back down. It’s just that the rate of increase has slowed, which probably contributes to people’s feeling that inflation hasn’t slowed.” This ongoing challenge means many retirees may struggle to manage their expenses, even with a slight benefit boost.
Could the COLA Estimate Change?
The 2.5% COLA estimate could still change before the official announcement. According to Johnson’s calculations, the likelihood of an increase is about 17%, while the chance of a decrease is around 13%. The final adjustment will depend on the latest inflation data, notably the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which will be released alongside the official announcement.
Understanding the COLA Calculation
The Social Security COLA is directly linked to the CPI-W, a specific subset of the broader Consumer Price Index. This metric tracks the prices paid by urban wage earners and clerical workers for goods and services, providing a snapshot of inflation that influences the adjustment. Historically, the average COLA has been around 2.6% over the last 20 years, according to the Senior Citizens League, a nonpartisan organization advocating for older adults. This year’s expected adjustment is closely aligned with that long-term average but significantly lower than recent increases.
When Will the 2025 COLA Take Effect?
Beneficiaries can expect to see their adjusted benefits in January 2025. However, they can find out about the changes to their payments earlier through their My Social Security online accounts or by checking their paper statements, mailed out in December. This adjustment will help recipients prepare for their financial plans in the coming year, even if the increase may not keep pace with their rising costs.
Preparing for the 2025 Adjustment
While the expected Social Security COLA for 2025 aims to help beneficiaries manage inflation, the relatively small increase may overwhelm many. As Joe Elsasser noted, inflation’s impact on daily expenses remains challenging despite the adjustment. With the official announcement just around the corner, retirees should stay informed and review their updated benefits statements as soon as they are available.
