New 2025 Cost Of Living Adjustment May Be Less Than You Expect (COLA)

May 31, 2024 By: Eliyah A. - CreditMonarch Online Writer0 comments

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Social Security is a vital source of income for millions of senior citizens, with some even using it as their sole source of income in retirement. In a 2023 report from the Nationwide Retirement Institute, it was found that nearly 1 out of every 5 adults over age 50 have no other retirement income other than their benefits. Social Security payments are dependent on the annual cost-of-living adjustment (COLA) and it can be a lifesaver for those who depend on it. The COLA is a benefit increase that is meant to help Social Security maintain its purchasing power over time.

The average monthly benefit of retired workers was raised from $1,848 to $1,907 due to the COLA’s 3.2% increase in 2024. The COLA is calculated using third-quarter inflation data, and the SSA will inform the public in October after the release of the September inflation report. The 2025 COLA is already being predicted by some experts, and there are both positive and negative implications concerning its eventual outcome. Inflation data is already being monitored by some experts this year to determine the COLA’s potential destination in 2025. The preliminary data suggests that seniors may experience disappointment.

Next year’s COLA could be around 2.6% predicted by analysts at The Senior Citizens League advocacy group. This is not just a reduction from 2024’s 3.2% adjustment, but it would also be the lowest COLA since 2021. There’s not always a negative impact from a smaller adjustment. The COLA is based off inflation data, specifically the CPI-W for Urban Wage Earners and Clerical Workers.

The SSA calculates the changes in the CPI-W year over year, and if the current year’s data is higher than the previous year’s, the percentage increase will be the COLA for the next year. In a nutshell, this means that if inflation is on the rise, the COLA should also go up. The SSA is attempting to help benefits maintain purchasing power over time through this method. If the CPI is smaller, it indicates that inflation is slowing down year over year.

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