Retired Social Security and Medicare Policy Analyst Mary Johnson is estimating a 3.2% cost of living adjustment (COLA) for 2025, based on the latest data released today by the Bureau of Labor Statistics’ (BLS) Consumer Price Index.
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Johnson, now an independent Social Security and Medicare policy analyst, cited inflation trends for the increase. “Inflation as measured by the index used to calculate the COLA, the Consumer Price Index for Urban Wage Earners and Clerical workers is up 3.4% over April one year ago,” said Johnson. “The higher inflation indicates that consumers are still experiencing an erosion in buying power.” Johnson currently uses a different methodology to calculate the forecast than the BLS does.
Johnson’s estimates are inching higher—so far in 2024, her estimates have gone from 1.4% in January to 1.75% in February, then to 2.4% in March and 3.0% in April.
The rise was slightly greater compared to a separate estimate by The Senior Citizens League (TSCL) Executive Director Shannon Benton, who marginally adjusted the organization’s long-term forecast 2025 COLA from 2.6% in March to 2.66%, due to April’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) that came in at 3.52%.
“With the forecast of a 2.66% COLA for 2025, it appears seniors will continue to suffer financial insecurity as much next year as they have this year”, says Benton.
The official 2025 COLA will be calculated based on the average rate of inflation using the CPI-W during the third quarter (July, August, and September) of this year, which is compared against the third quarter from the prior year.
The Consumer Price Index for May will be released on June 12.
Indexes that increased in April include shelter, motor vehicle insurance, medical care, apparel, and personal care. The indexes for used cars and trucks, household furnishings and operations, and new vehicles were among those that decreased over the month.
According to the BLS, shelter and gasoline contributed over 70% of the monthly increase in the index for all items, while the energy index increased 1.1% and the food index remained unchanged. The food at home index dropped 0.2%, while the food away from home index grew 0.3%. The index for all items less food and energy rose 0.3% in April, after rising 0.4 percent in each of the three preceding months.
The all items index rose 3.4% for the 12 months ending April, a smaller increase than the 3.5% increase for the 12 months ending March, the BLS reported. The all items less food and energy index rose 3.6% over the last 12 months. The energy index increased 2.6 percent for the 12 months ending April. The food index increased 2.2% over the last year.
Proposals on Social Security solvency
In her report, Johnson also touched on recent Social Security Trustee’s data that found the federal agency had gained another year of solvency, for until 2035. She added that failure from Congress to act before insolvency could lead to automatic benefit cuts. “Without changes to reduce costs and/or raise revenues received by the program, the Social Security Trustees estimate that all benefits would be reduced by more than 20 percent to match the amount of tax revenues received by the program after 2035,” Johnson said.
However, proposals to raise the eligibility age are also unlikely to prevent insolvency, Johnson added, based on estimates of similar proposals by the Social Security Office of the Actuary. One such proposal was introduced in 2016 by the late Representative Sam Johnson (R-TX-3), which estimated to resolve nearly 28% of the long-term shortfall. “The impact of this proposal would affect future retirees and thus not provide much in the way of increased financing to Social Security Trust Funds immediately,” Johnson estimated.
Instead, members of Congress who are considering benefit cuts may also consider cutting the growth rate of the Social Security COLA in order clear funds immediately, she proposed. Social Security Actuaries say such a change could resolve close to 17% of the long-term shortfall.
Johnson also predicts that Congress could eliminate close to two-thirds of the shortfall by applying a 12.4% payroll tax to all earnings. Currently, those with the highest earnings of more than $168,600 do not pay Social Security taxes on earnings over that amount. “The Social Security Actuaries estimate this proposal, along with adjustments to the benefit formula to provide some credit for benefits, would reduce the shortfall by about 66% of the long – term shortfall,” Johnson said.
Consumers fear low 2025 COLA estimate
Last year’s 3.2% COLA increase for 2024 raised concerns for Americans, some who saw the figure as small compared to the prior year’s 8.7% COLA.
According to data from public interest law firm Atticus, which surveyed 650 consumers receiving Social Security disability benefits, over 70% of beneficiaries thought the official 2024 COLA of 3.2% was too low, while 40% say they experienced negative financial impacts due to the final projection, and nearly 60% had to decrease their spending.
As a result, three in five disability benefit recipients are worried over their future financial stability after learning about the 2025 COLA projections in March, and nearly 60% are considering obtaining an additional income source to offset any impacts with projected 2025 COLA stats.
Respondents to Atticus’ survey added top policy recommendations for improving the COLA process for Social Security recipients, including increasing the COLA adjustments to more accurately reflect cost of living and inflation (58%); providing extra financial support for essential costs, like healthcare and housing (49%); and introducing minimum guaranteed benefits to ensure financial stability (45%).
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