The most recent cost-of-living adjustment (COLA) estimates say that Social Security payments will not go up as much as planned. It looks like the new COLA increase won’t be as big as many beneficiaries and retirees thought it would be.
What this means is bad news for people who depend on these benefits to pay their bills, especially those who only get money from Social Security checks. For 23 years, Gallup, a national polling group, has been asking seniors how much they rely on Social Security benefits.
In more than 20 years of annual polls, the share of retirees who depend on Social Security to make ends meet has never dropped below 80%. About 88% of retirees in 2024 said that their Social Security check was either a “major” or “minor” source of income.
The most-anticipated event of the year is Social Security’s cost-of-living adjustment (COLA) announcement, which is set for October 10 at 8:30 a.m. Eastern time. This isn’t a surprise, since America’s top retirement program is a big part of keeping the country’s aging workforce financially stable.
The COLA increase in Social Security benefits is not as expected
The Social Security Administration (SSA) adjusts benefits every year using COLA, a method that takes into account changes in the prices of goods and services. If the prices of the things that seniors usually buy go up by 2%, 3%, or 5%, their Social Security payments should be changed to keep up with the cost of living.
The cost-of-living increase that happens every year tries to keep benefits in line with inflation. This helps people stay competitive even though prices are going up. From 1940 to 1974, changes to benefits were made at random by Congress during special meetings.
This is because there were no COLAs in the 1940s. From 1950 to 1974, 11 major changes were made. The CPI-W has been keeping an eye on inflation for Social Security since 1975. It is used to measure inflation and figure out the annual COLA.
It’s hard to understand the CPI-W because it has over six main spending categories and a long list of subcategories, each with its own number weighting. Because of these weightings, the CPI-W can be given as a single, clear number every month.
The most important change is that the COLA calculation now only looks at CPI-W data from July to September over the past 12 months. There has been inflation, and if the average CPI-W reading for the third quarter of this year (July to September) is higher than the average reading for the same time last year, Social Security payments will go up.
The projected rise is based on the percentage increase in average third-quarter CPI-W readings from one year to the next, rounded to the nearest tenth of a percent.
Social Security benefits adjustment for 2025 has significantly narrowed
Over the last 20 years, the average COLA has been a measly 2.6%. In this time frame, there were three years of deflation (lower prices) with no COLA (2010, 2011, and 2016), as well as the smallest positive COLA ever recorded (0.3% in 2017). But this weak COLA trend has been partly turned around in the last three years.
The current inflation rate is rising at the fastest rate in forty years, which is why the COLA will be 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024. In particular, the 8.7% COLA in 2023 was the biggest percentage rise in the last 41 years. The July and August inflation numbers from the Bureau of Labor Statistics have made it much less likely that the 2025 COLA will happen.
Since she recently left from TSCL, Mary Johnson is now an independent Social Security and Medicare policy analyst. She has lowered her 2025 COLA prediction from 3.2% based on the April inflation report to 2.6% based on the most recent report. TSCL and Johnson used to have different ideas, but now they both agree that the 2025 COLA will be 2.6%.
This percentage will raise Social Security payments for about 68 million people, giving them an extra $46.35 per check based on an average payout of $1,782.74 in July 2024. However, this rise may be different for each person depending on their situation.
According to TSCL and Johnson, the cost of living will go up by 2.6%. This is the smallest increase in four years, but it is still the same as the average COLA over the last 20 years. More amazing is the fact that this would be the first time since 1997 that the Social Security COLA has gone up for four years in a row.
Benefits will have gone up by more than 22% by the end of 2022, given that the cost of living goes up by 2.6% the following year. On paper, it looks great that Social Security payments are growing faster than they have in a long time, but there are two problems with the 2025 COLA for Social Security.
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