People who get Social Security checks, especially retired people, are likely to get bad news as the new cost-of-living increase (COLA) gets closer. The Federal Reserve has said that these important payments may be cut even more in the coming years. This means that pensioners will have to deal with smaller gains in their Social Security income.
Since inflation is now under control, the time when Social Security payouts went up by a lot may be coming to an end. The FED has also told people who get Social Security that their payments may go down in 2026.
How does inflation impact the cost of living adjustments and Social Security checks?
It is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) that the Social Security Administration (SSA) uses to figure out the COLA. The changes are meant to make sure that Social Security checks keep up with inflation and that seniors can still buy things in the future.
As a result of high inflation, retirees’ incomes have gone up by 18.8% over the last three years. This is because the pandemic has made the economy less stable.
But because the Federal Reserve can keep inflation in check, it’s possible that big COLA raises will stop soon. As long as inflation stays low, Social Security recipients should expect fewer changes over the next few years.
The federal funds rate was dropped by 50 basis points by the Federal Reserve in September. It is now in a range of 4.75% to 5%. This is the first rate cut in four years. This move shows that the central bank is sure that inflation is now under control.
The Federal Reserve’s efforts to keep inflation in check are good for the economy as a whole, but they could be bad for seniors who depend on Social Security checks. Also, as inflation goes down, it might be harder for the Social Security Administration to raise payments.
This would make it harder for retirees to keep up with the rising cost of living. This rate drop won’t have a direct effect on the 2025 COLA, but it does show that the economic reasons that caused recent increases in Social Security checks have changed.
Beneficiaries should expect a smaller Social Security checks increase in 2025
The CPI-W numbers from July and August, which cover two months, can be used to figure out the 2025 COLA right now. CBS News says that the cost of living adjustment (COLA) for 2025 will be about 2.6%, which is much lower than in previous years if these numbers keep going up.
The CPI-W numbers from August show that prices went up by 2.87 percent in July and 2.35 percent in August. If inflation keeps going down like it did in September, the final COLA for 2025 might not be higher than 2.6%. The drop in the price of energy, especially oil, which is now selling below $70 per barrel, the lowest level in more than a year, is a big reason for this trend.
Since energy costs are a big part of the total inflation rate, the drop in energy prices means that year-over-year inflation will continue to go down. This makes it even less likely that the COLA will go up. The Federal Reserve has made it clear that it expects inflation to keep going down.
This is because its long-term goal for inflation is set at 2%. It thinks that inflation will reach its highest point of 2.3% at the end of 2024. After that, it will keep going down and reach 2.1% by the end of 2025.
This means that the COLA might only be 2.2% in 2026, which is a small drop from the 2.6% that was expected in 2025. Also, people who are planning their retirement will need to include these smaller COLA raises in their budgets.
It’s true that the COLA increases are meant to help seniors keep up with inflation, but because they are based on past economic data, they may not take into account the current financial problems retirees are having, like rising costs for basic things like food and electricity.
It’s important for retirees to plan for long-term financial stability because the Federal Reserve has warned that Social Security checks will get smaller COLA increases in 2026. This is because the age of big COLA increases may be coming to an end.
Using lower interest rates and managed inflation, retirees should keep their spending in check and plan for future changes. To deal with the changing economy and keep your finances stable, you need to be proactive about planning your finances.
Also See:- October Will See More Social Security Changes: New Announcements