The newest cost-of-living adjustment (COLA) predictions show Social Security payouts will not rise as much. The next COLA rise may be lower than beneficiaries and retirees expected, as they feared.
This is poor news for beneficiaries who depend on these benefits to pay their living expenses, especially those who solely receive Social Security checks. Gallup has been polling seniors on their Social Security dependence for 23 years.
Over 20 years of annual studies have shown that 80% of pensioners depend on Social Security. In 2024, 88% of retirees considered Social Security a “major” or “minor” income source.
The cost-of-living adjustment (COLA) announcement for Social Security on October 10 at 8:30 a.m. Eastern time is the most anticipated of the year, given its importance in supporting the nation’s aging workforce.
The COLA increase in Social Security checks is not as expected
SSA employs COLA, a yearly adjustment, to account for goods and service price changes. To maintain purchasing power, Social Security benefits should be modified if a senior’s normal purchases rise 2%, 3%, or 5%.
The annual cost-of-living adjustment helps beneficiaries compete with rising prices by matching inflation. From 1940 until 1974, Congress made arbitrary benefit changes during special sessions.
There were no COLAs in the 1940s, therefore 11 major adjustments occurred between 1950 and 1974. Since 1975, the CPI-W has tracked Social Security inflation and set the COLA.
The CPI-W is complicated, having over six primary spending categories and many subcategories with different percentage weightings. These weightings allow the CPI-W to be provided monthly as a single figure.
The COLA computation solely uses trailing 12-month CPI-W readings from July to September, the biggest change. The average CPI-W for the current year’s third quarter (July to September) must be greater than last year’s to indicate inflation and enhance benefits.
The year-over-year percentage rise in average third-quarter CPI-W readings, rounded to the nearest tenth, determines the predicted increase.
Also read:-Announced cuts in Social Security benefits (if nothing changes) – Update on retiree situation
The cost of living adjustment (COLA) 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 benefits for almost 68 million Social Security 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. Social Security’s 2025 COLA has two drawbacks, despite benefits climbing faster than before.
