(PatriotWise.com) — The Social Security cost-of-living adjustment (COLA) for 2025 is expected to be lower than it was in recent years due to the lower rate of inflation.
According to the latest estimate from independent policy analyst Mary Johnson, the 2025 COLA for the over 66 million Social Security beneficiaries will likely be 3 percent, slightly lower than the 3.2 percent cost-of-living increase received in January 2024, and significantly lower than the record 8.7 percent increase in 2023 and 5.9 percent increase from 2022, which reflected the record-high inflation in 2021 and 2022.
The annual cost-of-living adjustments are based on data from the Index of Urban Wage Earners and Clerical Workers (CPI-W), a subset of the Consumer Price Index.
In determining the annual COLA, the Social Security Administration compares the CPI-W data from the third quarter to the data from the same quarter in the previous year. The percentage increase reflected determines the cost-of-living adjustment for the following year. If the CPI-W data does not increase from the previous year, there is no cost-of-living adjustment for Social Security benefits.
Because we are only halfway through the year, it is possible that the estimated percentage for the 2025 COLA could change.
However, based on the latest CPI-W data, consumer prices in certain categories declined by double-digit percentages by May compared to two years ago, with fuel oil down 35.3 percent, gasoline down by 17.7 percent, and airfares down by 19.4 percent.
The impact a lower COLA has on individual retirees varies depending on their expenses and where they reside. However, according to senior research economist Laura Quinby of the Center for Retirement Research, many Social Security beneficiaries deal with rising inflation by cutting back on savings or tapping into existing assets, which takes a huge bite out of their future wealth.
Mary Johnson argued that the CPI-W data is not an ideal tool to measure retiree spending. For example, the data assumes that retirees spend roughly 66 percent of their income on necessities like food, housing, and medical care, when in reality, they spend about 75 percent.
Johnson said the CPI-W data could be undercounting the impact of inflation by over 10 percent.
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