2025 Social Security COLA Estimate Jumps to 3%
Inflation trends so far this year have led Mary Johnson, retired Social Security and Medicare Policy Analyst for The Senior Citizen’s League, to raise her 2025 Social Security COLA outlook from 2.4% to 3.0%, based on the jump in Consumer Price Index released this morning by the Bureau of Labor Statistics.
Next COLA Update: 2025 Social Security COLA Forecast Ticks Up
Previous COLA Update: Early 2025 Social Security COLA Forecast Rises Again
All COLA Updates: Social Security Cost of Living Adjustment (COLA)
“It is still early and this estimate is very likely to change,” noted Johnson.
Interestingly, it didn’t change as much according to TSCL’s Executive Director Shannon Benton, who released a separate estimate from Johnson’s later Wednesday that adjusted the organization’s COLA forecast from 2.4% to 2.6%—well short of Johnson’s adjusted 3.0% forecast. Johnson noted that TSCL, which she retired from earlier this year, is using different methodology to calculate its forecast than she does.
[EDITOR’S NOTE: This article was updated Wednesday to include information about TSCL’s revised COLA forecast.]
“If the COLA increases by 2.6%, that will be an approximately $45 increase. What can you buy for that? Not much,” said Benton, who now oversees estimates of the Social Security COLA for TSCL.
“From long-term dwindling purchasing power to heightened financial uncertainty, the trouble of seniors not being able to make ends meet remains a pressing concern of The Senior Citizens League,” according to Benton, “and it should be a pressing concern of Congress as well.”
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the same index used to calculate the COLA, rose to 3.5%, exceeding the 3.2% COLA that Social Security recipients started to get in 2024. “That means older consumers are losing buying power,” Johnson said.
She added that gasoline and shelter costs were two categories taking the biggest jumps in March, but consumers are still dealing with high inflation for motor vehicle insurance, up 22.2%, hospital services 10.7%, and housing costs up 5.7%. The cost of electricity is up by 5% versus 3.1% for gasoline, as consumers move to a greater reliance on electricity for vehicles.
While Johnson readily admits it’s still way too early to predict what the actual 2025 COLA will end up being, by the fall her estimates tend to be very close to what the official adjustment ends up being. So far this year, her estimates have gone from 1.4% in January to 1.75% in February and 2.4% in March before being adjusted to 3.0% for April.
The main all-items index, Consumer Price Index for All Urban Consumers (CPI-U), increased 0.4% in March on a seasonally adjusted basis, the same increase as in February. The New York Times reported today that the “surprisingly stubborn inflation reading could raise doubts about when the Federal Reserve will be able to start cutting interest rates and how much it will be able to reduce borrowing costs this year.”
Over the last 12 months, the all-items index increased 3.5% before seasonal adjustment, same as the CPI-W. That’s still higher than the roughly 2% that was normal before the pandemic.
The official 2025 COLA will be calculated based on the average rate of inflation using the CPI-W during the 3rd quarter (July, August and September) of this year, which is compared against the 3rd quarter from the prior year.
This year’s 3.2% COLA raise was well below the last two annual increases of 8.7% and 5.9%, respectively. But the 2024 adjustment still ranks well above a 20-year average that sits slightly above 2.6%. The Social Security Administration says the estimated average monthly Social Security retirement benefit for January 2024 was $1,907. If the 2025 COLA were to end up at the currently forecasted 3%, it would mean a monthly increase of $57.21 for the average benefit, raising it to about $1,964.
The Congressional Budget Office recently released an estimate of the 2025 COLA in its annual Budget and Economic Outlook for 2024 to 2034. The CBO has the 2025 COLA pegged at 2.5%, using a different methodology than TSCL’s. But both estimates reveal inflation rates are expected to fall from 2023 levels, and the COLA for 2025 is expected to be lower than this year’s 3.2% raise.
Academic calls for switch to CPI-E
The Senior Citizens League isn’t the only one predicting a smaller 2025 COLA. So is Syracuse University Professor of Social Work Eric Kingson, the founding co-director of Social Security Works and affiliated with the Strengthen Social Security Coalition, a coalition of over 300 national and state organizations dedicated to advancing economic security through strengthening and expanding the nation’s Social Security policies and programs.
“It’s not at all surprising that it will be smaller than the 2021, 2022, and even the 2023 COLA,” said Kingson. “The rate of inflation has declined and so did the 2023 COLA. Barring an unexpected hike in inflation, the 2024 COLA will be smaller. Nothing nefarious. Just mathematics since the COLA is based on variations in the CPI-W.”
However, he added that the current means of determining the size of the COLA slightly short-changes older Americans, people with disabilities and survivors and it should be reformed.
“The CPI-W currently used to calculate the COLA does not fully take into account the impact of rising health care costs on older Americans (and persons with severe work disabilities and survivors). It falls short of assuring that Social Security benefits maintain purchase power, no matter how long a retiree, disabled worker or survivor lives.” Kingson said.
The alternative “Chained-CPI” doesn’t pass the smell test, he added, and would cut benefits of all retirees, survivors, and persons with severe work disabilities, which he says would be a clear violation of promises made to Social Security beneficiaries and persons nearing retirement.
“The Consumer Price Index for the Elderly (CPI-E) for Americans 62 and older, an index whose development was mandated by the 1987 Amendments to the Older Americans Act, does a better job of maintaining the purchasing power of benefits because it takes into account the disproportionate and rising cost of health care for the old and disabled.”
SEE ALSO:
• Early 2025 Social Security COLA Forecast Rises Again
• Early 2025 Social Security COLA Forecast Inches Up on Inflation Data
• It’s Official: 2024 Social Security COLA Set at 3.2%
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
