As we look ahead to 2025, the projected cost-of-living adjustment (COLA) for Social Security is shaping up to be the smallest increase for retired workers since 2021.
Every year, Social Security benefits receive a cost-of-living adjustment (COLA) designed to help beneficiaries keep up with rising prices. This annual adjustment is crucial in ensuring that retirees and other recipients maintain their purchasing power in the face of economic changes.
New Social Security COLA forecast
Recently, inflation has shown signs of moderating, and this trend is expected to continue. As a result, The Senior Citizens League (TSCL) has recently revised its 2025 COLA forecast downward, though the change is modest.
“The 2025 COLA prediction is about 2.57%, down from 2.63% last month,” according to the Senior Citizens League. This means that both estimates suggest payouts will increase by 2.6% in 2025, as COLAs are rounded to the nearest tenth of a percentage point.
While this might sound like good news, it’s important to note that it would still be the smallest raise since 2021. There’s a more concerning issue at play: TSCL estimates that Social Security benefits have lost 20% of their purchasing power since 2010.
This decline is attributed to COLAs consistently failing to keep pace with actual inflation rates. This erosion in purchasing power means that beneficiaries are finding it increasingly challenging to cover their expenses.
- Social Security’s 2025 COLA is projected to be 2.6%, the smallest increase since 2021.
- Inflation moderation has led to a downward revision in COLA forecasts.
- TSCL reports a significant loss in purchasing power for Social Security benefits since 2010.
As we move forward, it’s essential to stay informed about these adjustments and understand how they impact long-term financial planning. For retirees and other beneficiaries, the goal remains to find ways to cope with these changes and maintain financial stability.
The accuracy of recent statistics is debatable, yet there is substantial evidence suggesting that Social Security benefits are losing their purchasing power. This issue is becoming increasingly concerning for many retirees.
Declining Purchasing Power of Benefits
According to a survey conducted by the Senior Citizens League this year, two-thirds of seniors reported that the 2024 Cost-of-Living Adjustment (COLA) failed to cover the rise in their basic household expenses. This demonstrates a significant gap between the adjustments made and the actual inflation experienced by retirees.
In addition, a survey by the Employee Benefit Research Institute highlighted that 26% of retired workers lacked confidence in their ability to finance their retirement. This figure represents the second-worst reading since 2015, underscoring the growing financial insecurity among retirees.
Challenges Ahead for Social Security in 2025
Unfortunately, the outlook for Social Security’s 2025 COLA isn’t promising. There is a strong possibility that it may once again underestimate inflation, leading to a further erosion of benefits’ buying power next year.
Social Security Benefits and Inflation
Theoretically, annual cost-of-living adjustments (COLAs) are designed to protect the buying power of Social Security benefits by ensuring that payouts rise in line with inflation. However, when these adjustments fail to keep pace with the actual increase in living costs, the effectiveness of this mechanism comes into question.
- Rising household expenses: Many seniors find that COLAs do not adequately cover increased costs.
- Retirement confidence: A significant portion of retirees are concerned about their financial stability.
- Future COLAs: There is a risk that future adjustments may fall short, further reducing purchasing power.
As we look forward, it is crucial to address these discrepancies to ensure that Social Security benefits can provide the intended financial security for retirees.
The Cost-of-Living Adjustment, or COLA, applied to benefits each year is determined by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter of the previous year.
This means the three-month period from July to September is crucial for calculating the official COLA. Consequently, the 2025 COLA cannot be precisely calculated until the third-quarter CPI-W data becomes available in October.