Retirees could be in store for a lower Social Security increase next year.
Arguably, no government report matters to retirees as much as the monthly U.S. Bureau of Labor Statistics (BLS) Consumer Price Index Summary. This report provides inflation data for the previous month.
Why is it important to retirees? One of the numbers in the report is critical to calculating the annual Social Security cost-of-living adjustment (COLA).
On Wednesday morning, the BLS released its inflation report for July. It didn’t take long for the first updated projection to come out regarding how much next year’s COLA might be. Here’s the latest 2025 Social Security COLA estimate — and why there’s both good news and bad news for retirees.
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The latest 2025 Social Security COLA estimate
After BLS released its July report, headlines trumpeted that the Consumer Price Index (CPI) fell below 3% for the first time in nearly three-and-a-half years. The July CPI of 2.9% was also lower than the consensus estimate of 3%.
However, the CPI (which technically is the Consumer Price Index for All Urban Consumers, or CPI-U) doesn’t matter for retirees’ Social Security benefits increase. Instead, the Social Security Administration (SSA) uses a less-heralded metric called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The CPI-U and the CPI-W usually move in lockstep. They did so in July, with both inflation metrics rising 0.1% from the previous month and 2.9% year over year.
Should retirees expect a 2.9% Social Security COLA next year? Not according to independent Social Security and Medicare policy analyst Mary Johnson. Her model, which incorporates the monthly CPI-W figures, estimates the Social Security benefit increase in 2025 will be 2.6%. (Johnson projected a 2.7% increase last month.)
Good news and bad news for retirees
Some retirees might see a 2.6% COLA as bad news. Social Security benefits increased by 3.2% this year and jumped 8.7% in 2023. For anyone who views the annual COLA as a raise, receiving a lower amount will be a change for the worse.
However, in a real sense, a lower COLA in 2025 is good news for retirees. Why? It means that inflation is moderating. Social Security benefits will stretch further with lower inflation.
There’s good news for retirees in the details of the July inflation report, too. The costs of eating out increased by 0.2% month over month, a lower sequential increase than in the previous four months. According to Statista, older Americans tend to eat out more than younger Americans.
The medical-care index slid 0.2% lower in July after rising 0.2% in June. Hospital services costs declined 1.1% last month. These trends are also positive for retirees since healthcare is typically a bigger expense for them.
However, we can find at least one inescapable negative associated with a Social Security COLA of 2.6%: Retirees won’t receive the benefits increase until January 2025 but will incur the higher costs this year.
Only an estimate
It’s important to remember that we’re only talking about an estimate of what the 2025 Social Security COLA might be. The actual number won’t be announced until mid-October.
SSA uses the CPI-W figures from the third quarters of 2023 and 2024 to calculate the annual COLA. The final monthly number for Q3 of this year will be released on Oct. 10, 2024. The official 2025 Social Security COLA should be available soon afterward.