As summer progresses, Social Security recipients are anxiously awaiting the upcoming cost-of-living adjustment (COLA) for the new year. Unfortunately, the outlook is not promising. Millions of Social Security beneficiaries are expected to receive the smallest COLA in four years, based on the latest projections.
The nonpartisan advocacy group The Senior Citizens League (TSCL) has estimated that next year’s COLA will be significantly lower than the 3.2% increase seen last year.
According to Alex Moore, a statistician with TSCL and managing partner of Blacksmith Professional Services, the projected COLA for 2025 is around 2.57%, down from last month’s estimate of 2.63%. This would mark the lowest COLA since 2020, when recipients saw a modest 1.3% increase.
In contrast, the past few years have seen more substantial adjustments, with a 5.9% increase in 2021 and a historic 8.7% increase in 2022. However, the rapid inflation that followed these increases left many seniors in a precarious financial position, with little time to recover their savings.
Purpose of the COLA in Social Security
The purpose of COLAs is to ensure that Social Security benefits keep pace with inflation, protecting the purchasing power of beneficiaries. These adjustments are calculated using data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
If the CPI-W increases, Social Security benefits rise by the same percentage. Conversely, if there is no increase in the CPI-W, there is no COLA.
In 2024, after a significant increase in COLA, inflation surged again, quickly outpacing the adjustment and leaving many seniors vulnerable. While inflation has recently decreased slightly, with the Consumer Price Index (CPI) showing a decline from 3% in June to 2.9% in July, many Americans, particularly seniors, continue to struggle with the high cost of living. The TSCL has emphasized that inflation remains a “top concern” for seniors.
The TSCL’s 2024 Retirement Survey, conducted in July, highlighted the financial challenges faced by older Americans. Of the 2,016 seniors surveyed, 71% reported that inflation has forced them to dip into their savings, making it their top financial worry.
Additionally, 78% noted that their monthly budgets for essential expenses, such as housing, food, and medicine, had increased over the past year. Furthermore, 62% expressed concern that their retirement income might not be sufficient to cover these rising costs.
These statistics reveal a larger issue: the cost of living has become so high, particularly in certain parts of the country, that many seniors are struggling to get by each month.
Relying on savings for daily expenses is not a sustainable long-term strategy, and once those savings are depleted, seniors may find themselves in desperate need of additional financial support from state or federal programs.
Conclusion
Despite numerous proposals over the years to ease the economic burden on seniors, none have been implemented. The only consistent measure to increase Social Security benefits remains the annual COLA, which, as it stands, may not be enough to keep up with rising costs.
Q1. What is the projected COLA for Social Security in 2025?
A. The projected cost-of-living adjustment (COLA) for 2025 is 2.57%, which is expected to be the smallest increase in four years.
Q2. How does the COLA affect Social Security benefits?
A. The COLA adjusts Social Security benefits to keep pace with inflation, ensuring that beneficiaries maintain their purchasing power as the cost of living rises.
Q3. Why is the COLA expected to be lower in 2025?
A. The lower COLA projection for 2025 is due to a recent decline in inflation, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Q4. How has inflation impacted seniors in 2024?
A. Despite a COLA increase, inflation in 2024 spiked, outpacing the adjustment and putting many seniors in a vulnerable financial position.
Q5. What financial concerns are most pressing for seniors?
A. According to a TSCL survey, 71% of seniors are concerned about inflation forcing them to use their savings, with 78% noting increased costs for essentials like housing, food, and medicine.
