Even with moderating inflation, there’s still a big problem for retirees with whatever next year’s COLA will be.
Step aside, Wimbledon. Forget the summer Olympic games. Many retirees across the U.S. are much more interested in how much their Social Security benefits will increase next year.
They now have a better feel for what the magic number might be. Here’s the latest Social Security cost-of-living adjustment (COLA) estimate — and why it’s both good news and bad news for retirees.
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The latest COLA estimate
First, it’s important to note that we won’t know for sure what the next Social Security COLA will be until mid-October. That’s because the Social Security Administration (SSA) uses inflation figures from the third quarter of the current and previous years to calculate the benefits increase (if any).
However, on July 11, 2024, the U.S. Bureau of Labor Statistics (BLS) released inflation data for June. Although the numbers can’t conclusively predict what the 2025 COLA will be, experts use them to adjust their estimates.
BLS announced last week that inflation as measured by the Consumer Price Index for All Urban Consumers (CPI-U) rose 3% year over year in June before any seasonal adjustments. SSA, though, uses a different inflation metric — the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W also increased 3% over the last 12 months.
Independent Social Security and Medicare analyst Mary Johnson previously projected the 2025 COLA would be 3%. However, she predicts a benefits increase of 2.7% based on the latest inflation data.
The Senior Citizens League (TSCL), a nonprofit advocacy group for seniors, revised its 2025 Social Security COLA upward slightly after reviewing BSL’s recent inflation numbers. TSCL now projects an increase of 2.63% compared to 2.57% last month. Since SSA rounds to the nearest tenth of 1% for COLAs, retirees could be looking at an adjustment of 2.6% with TSCL’s June or July forecasts.
Bad news
What’s the bad news for retirees with a 2025 COLA of 2.6% or 2.7%? It’s not that they’ll receive a lower “raise” than they did last year when the annual increase was 3.2%. The main issue with the Social Security COLA is that it likely won’t be enough.
The CPI-W metric used to calculate annual COLAs wasn’t designed with seniors in mind. As a result, it fails to adequately reflect some price increases that hit retirees harder than most Americans.
For example, healthcare costs make up a higher percentage of older Americans’ budgets than they do for younger people. In June, medical care services rose 3.3% year over year — higher than the overall inflation rate. Americans ages 65 and older also often eat out at least once a month more than any other age group. Those costs jumped 4.1% year over year in June.
Good news
Let’s end with the good news for retirees: Inflation appears to be falling. The BLS inflation index for all items excluding food and energy even had its smallest 12-month increase in June since April 2021.
As TSCL put it in the organization’s update last week, “[E]asing inflation should relieve older consumers.” Lower inflation is much preferable to skyrocketing inflation because it means retirees keep more money in their pockets.
Moderating inflation is especially important due to the timing of Social Security COLAs. Retirees must pay higher prices now but won’t receive a benefits increase to help offset those higher costs until next year. Even if it results in a lower annual Social Security adjustment, retirees should cheer the trend of milder inflation.