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 raise will not be as high 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 is not 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 is 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.
Also read:-2024 COLA is history – Social Security will change everything after this date
Social Security benefits adjustment for 2025 has significantly narrowed
COLAs have averaged 2.6% over the past 20 years, which is disappointing. This period contains three years of deflation (lower prices) without a COLA (2010, 2011, and 2016) and the smallest positive COLA ever (0.3% in 2017). The past three years have partially reversed this weak COLA trend.
The fastest inflation rate increase in 40 years caused the 5.9% COLA in 2022, 8.7% in 2023, and 3.2% in 2024. In particular, the 8.7% 2023 COLA was the highest increase in 41 years. The Bureau of Labor Statistics’ July and August inflation data substantially decreased 2025 COLA predictions.
following retiring from TSCL, independent Social Security and Medicare policy researcher Mary Johnson dropped her 2025 COLA prediction from 3.2% following April inflation data to 2.6% after the latest report.
TSCL and Johnson agree on a 2.6% 2025 COLA after starting from opposite places. Based on an average payout of $1,782.74 in July 2024, this percentage will enhance Social Security benefits for almost 68 million beneficiaries by $46.35 per check, but individual situations may vary.
TSCL and Johnson expect a 2.6% cost-of-living adjustment, the lowest in four years but in line with the 20-year average. Even more amazing is that it would be the first four-year Social Security COLA hike since 1997.
Benefits will rise by over 22% by 2022, assuming a 2.6% cost-of-living adjustment. On paper, Social Security payouts are expanding faster than ever, but the 2025 COLA has two drawbacks.
