Bad News coming for Retirees – New increase in Social Security checks is not what was expected:The most recent cost-of-living adjustment (COLA) estimates indicate that Social Security benefits would not rise as much as anticipated. It seems that the new COLA rise won’t be as large as many retirees and beneficiaries had feared.
For beneficiaries who depend on these benefits to pay for living expenses, particularly those who depend solely on Social Security checks, this is bad news. For 23 years, seniors have been surveyed by national pollster Gallup to determine how dependent they are on Social Security benefits.
In more than 20 years of yearly surveys, the percentage of seniors who depend on Social Security income to make ends meet has never dropped below 80%. 88% of retirees stated in 2024 that they received their Social Security benefits as a “major” or “minor” source of income.
The most anticipated announcement of the year is Social Security’s cost-of-living adjustment (COLA), which is set for October 10 at 8:30 a.m. Eastern time. This is not surprising given the substantial contribution that America’s premier retirement program makes to providing a stable financial base for the nation’s aging workforce.
The Social Security COLA boost is not what was anticipated.
COLA is an annual adjustment technique used by the Social Security Administration (SSA) to adapt for changes in the cost of goods and services. To preserve purchasing power, Social Security benefits should be modified whenever the average cost of a senior’s purchases increases by 2%, 3%, or 5%.
In an effort to maintain beneficiaries’ competitiveness in the face of growing costs, the annual cost-of-living adjustment attempts to keep them in step with inflation. Benefit changes were implemented arbitrarily by Congress during special sessions between 1940 and 1974.
Since there were no COLAs during the whole 1940s, there were eleven significant adjustments made between 1950 and 1974. In order to serve as Social Security’s inflationary tether and calculate the yearly COLA, the CPI-W has been monitoring inflation since 1975.
The CPI-W is a sophisticated tool with more than six primary spending categories and a long list of subcategories, each with a distinct percentage weighting. The CPI-W may be provided as a single, unambiguous figure each month thanks to these weightings.
The biggest modification is that only the trailing 12-month CPI-W readings from July to September are included in the COLA computation. Benefits will rise if the average CPI-W measurement for the third quarter of this year (July to September) is higher than the average reading for the same period previous year.
Inflation has already occurred. The average third-quarter CPI-W readings’ year-over-year percentage rise, rounded to the closest tenth of a percent, determines the projected increase.
The 2025 cost of living adjustment (COLA) has narrowed considerably.
Over the last 20 years, the average COLA has been a depressing 2.6%. In 2010, 2011, and 2016, there were three years of deflation (lower prices) with no COLA; in 2017, there was the smallest positive COLA on record (0.3%). This weak COLA trend has, however, been partially reversed over the last three years.
The present inflation rate is increasing at its quickest rate in four decades, resulting in COLAs of 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024. To be more precise, the 8.7% COLA in 2023 was the highest percentage increase in the previous 41 years. The Bureau of Labor Statistics’ inflation data for July and August has significantly lowered projections for the 2025 COLA.
Following the most recent report, Mary Johnson, an independent Social Security and Medicare policy analyst who just retired from TSCL, reduced her 2025 COLA prediction from 3.2% following the April inflation data to 2.6%.
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TSCL and Johnson began from different places, but they now basically agree that the COLA in 2025 will be 2.6%. Based on an average payout of $1,782.74 in July 2024, this percentage will enhance benefits for roughly 68 million Social Security beneficiaries, translating into an extra $46.35 every check. However, this amount may vary depending on individual circumstances.
According to TSCL and Johnson’s estimates, the cost-of-living adjustment will increase by 2.6%, which will be in line with the average COLA for the previous 20 years while being the lowest percentage increase in four years.
Even more astounding is the fact that this would mark the first four years in a row that the Social Security COLA has increased, since 1997. Assuming a 2.6% cost-of-living adjustment the following year, benefits will have climbed cumulatively by more than 22% by the end of 2022.
While it seems great on paper that payments are increasing more quickly than they have in recent memory, there are two disappointing truths regarding Social Security’s 2025 COLA.
