BIG UPDATE – 2025 Social Security COLA Expected at 2.6%: Impact on Retirees and Inflation Concerns

According to CNBC Despite new government data indicating a decline in inflation, many retirees continue to struggle with rising costs. The upcoming Social Security cost-of-living adjustment (COLA) for 2025 may not offer substantial relief.

Mary Johnson, an independent analyst specializing in Social Security and Medicare policy, projects that the COLA for 2025 could be 2.6%. This is a decrease from the 3.2% increase in 2024 and significantly lower than the 8.7% adjustment in 2023 and the 5.9% boost in 2022. If accurate, this would be the smallest COLA since 2021, though it aligns with the average adjustments of the past two decades.

The 2025 COLA estimate is subject to change, as it is based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The final adjustment will be announced by the Social Security Administration in October.

Retirees Feeling the Strain of Persistent Inflation

According to a recent AARP survey, 61% of adults aged 50 and older are concerned about not having enough money to support themselves in retirement. Inflation remains a significant worry for many, with 37% anxious about meeting basic expenses such as food and housing, and 70% concerned that rising prices will outpace their income increases.

Inflation impacts retirees more severely than those nearing retirement since their income generally does not adjust as quickly to rising costs. Although Social Security benefits are adjusted annually for inflation, some experts argue that these adjustments have not kept pace with rising costs.

Research from the Senior Citizens League, a nonpartisan senior advocacy group, indicates that the average Social Security benefit has lost 20% of its purchasing power since 2010. To maintain 2010 buying power, the current average benefit of $1,860 would need to rise to $2,230.

Advocates, including the Senior Citizens League, suggest that the Consumer Price Index for the Elderly (CPI-E) might better reflect retirees’ expenses. However, opinions vary on whether switching to the CPI-E would be beneficial. Alicia Munnell, director of the Center for Retirement Research at Boston College, notes that while the CPI-E has historically risen faster, the difference has decreased in recent years. Therefore, switching indices may not be the most effective solution.

In summary, while the 2025 COLA may provide some adjustment for inflation, many retirees are still grappling with the effects of rising costs, and debates continue about the best measures to ensure their financial security.