Retirement experts have given their final predictions for how much the Cost of Living Adjustment (COLA) will be ahead of the official announcement next week.
The Social Security COLA is designed to help benefits keep up with inflation, so buying power is not eroded over time. It’s calculated using the Consumer Price Index, which measures inflation, as determined each October by the Bureau of Labor Statistics, with an announcement due on October 10.
Recent COLAs have been among the highest ever administered, including a whopping 8.7 percent increase for benefits paid in 2023 due to sky-high inflation caused by the coronavirus pandemic. The COLA boosted benefits by 3.2 percent this year.
But retirees aren’t expecting such a significant boost this time. Many experts have given roundabout predictions of 2.5 percent for benefits issued in 2025, including independent Social Security and Medicare policy analyst Mary Johnson. She said a benefit recipient receiving $1,870 per month from the Social Security Administration (SSA) could see their monthly payment rise by about $46.80 next year.
A file photo of an elderly person counting money. The COLA will come into effect later this year.
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“The 2025 COLA will be the lowest received by Social Security beneficiaries since 2021, at the same time inflated prices persist on key essentials such as housing, meats, auto insurance, any type of service and repairs,” Johnson said in a statement to Newsweek. “Despite it being the lowest COLA since 2021, a 2.5 percent COLA would be considered about average.”
Krisstin Petersmarck, the founder and CEO of New Horizon Retirement Solutions, agrees with the 2.5 percent figure. “This seems to align with the Fed’s recent reduction of interest rates by 50 basis points and the 20-year average COLA adjustment of 2.6 percent,” she told Newsweek.
Burt Williamson, a retirement specialist at PlanPrep, has predicted a higher increase of 3 percent – or possibly even more.
“I believe they will increase Social Security benefits this year by no less than 3 percent,” he told Newsweek, taking into account “highly volatile energy costs are the leading factor holding inflation down. They have to consider a spike in those costs in the winter months, which would spike the cost of living for seniors.
“Anything less than 3 percent will have a negative impact on the sentiment of most seniors, who continue to deal with much higher costs of everything that spiked over the last few years.”
The Impact
While a lower COLA directly correlates to lower inflation, seniors may not know if the boost will have any real impact on their finances until it comes into effect later this year.
“We won’t know whether it will be a good or bad COLA until January of 2026, when we’ll know what inflation was for all of 2025,” Robert Brokamp, a senior retirement adviser at The Motley Fool, told Newsweek. “In a time of flat to dropping rates of inflation, as we’ve been experiencing for a the past few months, a 2.5 percent increase in Social Security benefits may look pretty good if inflation in 2025 is lower.”
Brandy Burch, CEO of Benefit Bay, told Newsweek that this year’s increase may be ineffective when compared to healthcare, housing and utility costs, all of which are rising in price beyond the CPI-W’s measure. According to the Consumer Price Index for All Urban Consumers (CPI-U), shelter costs have risen by 5.2 percent in the year since August 2023 – more than double the predicted COLA increase. Medical costs rose by 3.2 percent in the same period.
Burch said that while increases to benefits are certainly welcome, 2.5 percent “might not fully keep pace” with “things that tend to eat up a significant portion of a retiree’s budget.
“Retirees are still feeling the pinch from lingering high prices. So, while it’s a positive development in terms of added income, it might not be enough to cover the rising living costs that affect their day-to-day expenses.”
How Exactly Is the COLA Calculated?
The COLA is based on the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the third quarter of the current year and the average CPI-W in the same period of the previous year. If there’s an increase, that percentage is rounded to the nearest 10th of 1 percent, and that becomes the new COLA.
The change applies to the following benefits issued by the Social Security Administration:
- Retirement benefits, including spouses who qualify for Social Security benefits based on their partner’s earnings
- Survivor benefits
- Supplemental Security Income
- Social Security Disability Insurance
An announcement regarding the finalized rate will be made on October 10, with updated benefit amounts being issued from December 2024 onward.
