Experts anticipate that 2025’s Social Security (cost-of-living adjustment (COLA) will be lower than 2024’s based on recent consumer price index data.
CPI for Urban Wage Earners and Clerical Workers is up 2.9%, suggesting that the new Social Security COLA for 2025 could be posted under the 3% mark.
By contrast, 2024’s Social Security COLA’s increase to monthly benefits is 3.2%.
Inflation and Impact
Government officials cite cooling inflation numbers as a factor, including the handling of inflationary pressure over the past couple of years. Inflation-fighting measures include record high interest rates, slowing borrowing.
But prices remain high, which might lead to some confusion for people who still feel frustrated while shopping. Lower inflation doesn’t mean that prices are coming down. But rather, that prices will not rise as rapidly as they have in recent years.
Sri Reddy, a Senior Vice President at Principal Financial Group, told the AARP that “inflation and core inflation have both appeared to come down and normalize in the first half of the year.”
“While July CPI results have come down further, barring any significant macro events, the Social Security COLA for next year should be between 2.75 and 3.25 percent,” Reddy says.
Keeping the Social Security COLA in Place
For its part, AARP is dedicated to keeping the annual benefit increase at 2023 levels.
If the Social Security COLA is under 3% in 2025, it will be the lowest hike since 2021. Prior to that year, there were no hikes above 3% since 2012.
Related: How to Increase Your Social Security Payments
Cost of Living Calculations
Technically speaking, the cost-of-living adjustment for Social Security is calculated based on economic indicators like the Consumer Price Index.
Officials specify COLA adjustment numbers for employed and self-employed workers using data from the Bureau of Labor Statistics.
Last year’s 3.2% raise increased the average income for retired workers by an average of $60 per month.
The official numbers won’t be out until October. But Social Security recipients can start planing around what they can expect in monthly benefits from the Social Security program.
Despite the lower COLA raise for 2025, that number will still be factored into the program’s operations.
Long-term, the financial health of the program is in jepordy. Current estimates project the program will become insolvent in 2035 — possibly sooner. Without intervention, COLA adjustments may be forfeited all together and benefits may even be cut.
How the program will be handled in the future depends on the country’s economic performance and any whether other kinds of federal financial pressure, such as the nation’s mushroom-clouding debt, are addressed in the coming years.
