As we approach the first month where Consumer Price Index inflation data will really count, the two primary monthly forecasts for the 2025 Social Security cost of living adjustment both backed their predictions down slightly based on the CPI data released this morning.
Next COLA Update: Updated 2025 Social Security COLA Forecasts Point Toward Lower Raise
Previous COLA Update: 2025 Social Security COLA Forecast Ticks Up
All COLA Updates: Social Security Cost of Living Adjustment (COLA)
Latest estimates from two top sources now range from 2.57% to 3% for next year’s cost of living adjustment
Retired and now independent Social Security and Medicare policy analyst Mary Johnson said this morning the COLA for 2025 could be 3% based on the latest inflation data through May 2024, as the rate of inflation moderates. The Bureau of Labor Statistics announced that inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)—which is used to calculate the annual COLA—was 3.3% higher than a year ago.
The Senior Citizens League this morning lowered its 2025 COLA projection slightly, saying its model points to a substantially lower COLA for next year after the 3.2% COLA for 2024. “The 2025 COLA prediction is about 2.57%, down from 2.66% last month,” said The Senior Citizens League’s Social Security and Medicare statistician, Alex Moore, managing partner at Blacksmith Professional Services.
This year’s COLA will be important because many seniors said it didn’t keep up with their real-life expenses last year. Among the roughly 1,550 participants in TSCL’s 2024 Senior Survey, 69% said their household costs rose faster than the COLA last year, with costs for food and housing leading the way. The fact is that COLAs have become less and less likely to keep up with inflation over time, TSCL said in a press release this morning. Just one of the five COLAs implemented so far in the 2020s (20%) has outpaced inflation, compared to 40% in the 2010s and 60% in the 2000s and 1990s.
TSCL put it this way in its press release:
“What’s worse, when COLAs fall short, it can leave seniors thousands of dollars behind what they expected from Social Security. This is mainly because a COLA shortfall has a long-lasting, cumulative effect. For example, imagine getting a $1,000 monthly Social Security check in your first year of retirement. You get a 4% COLA, and inflation is 5%, so now your check is $1,040 but should be $1,050. Then, the following year, the COLA and inflation are both 5%. Your check is now $1,092 but should be $1,102.50—an even bigger gap than the year before! Compound this across 12 checks a year over a 25- to-30-year retirement, and the numbers start adding up quickly!”
TSCL’s senior survey found that about half of retirees have dipped into emergency savings over the last year, while a third have visited a food pantry or applied for SNAP benefits, food stamps, to put dinner on the table. A quarter have depleted a retirement or savings account to zero.
The Senior Citizens League estimates Social Security benefits have lost about 36% of their buying power since 2000 due to higher real costs for retirees compared to what is tracked by the CPI-W.
CPI-W not accurately tracking senior spending
Johnson, long known for her COLA forecasts that are now independent after retiring from The Senior Citizens League last year, brought her prediction for next year’s adjustment down to 3% from 3.2% last month—a stark contrast as her forecast had been rising through the first four months of the year. Her previous estimates have gone from 1.4% in January to 1.75% in February, then to 2.4% in March, 3.0% in April and 3.2% in May.
How well does this estimate really reflect the typical rising costs of older consumers in 2024? Johnson said the answer has to do with the portion of income that older consumers spend on things like housing, groceries, and medical costs. She notes the CPI-W can undercount when compared to spending patterns of older consumers Consumer Price Index for the Elderly (CPI-E), which means it can subsequently underpay Social Security recipients.
The CPI-W, which is used to calculate the COLA, assumes that older adults spend about two-thirds of their income on housing, food and medical costs. In reality, older consumers spend about three-quarters of their income on these costs, according to the Bureau of Labor Statistics expenditure weights.
“This disparity suggests that my COLA estimate, which is based on the CPI-W, may be undercounting real senior inflation by more than 10%,” Johnson said.
Per this morning’s monthly press release from the Bureau of Labor Statistics, the CPI-W increased 3.3% over the last 12 months. For the month of May, the index decreased 0.1% prior to seasonal adjustment.
The CPI for All Urban Consumers (CPI-U) was unchanged in May on a seasonally adjusted basis, after rising 0.3% in April. Over the last 12 months, the broader all-items index has also increased 3.3% before seasonal adjustment.
Today’s new report is being interpreted as a sign that inflation is cooling again, and it could influence Federal Reserve officials as they set out a future path for interest rates. This after initial projections from experts for a steep decline in inflation in 2024 have needed revision since the start of the year.
Starting in July, the CPI figures will actually begin to impact what the 2025 COLA ends up being. 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. That final official Social Security COLA raise for next year is expected to be announced on Oct. 10, 2024.
No ‘$600 increase’ coming this year
Despite a recent wave of online articles claiming Social Security recipients will be getting a $600 monthly payment increase or fourth “stimulus payment,” that will NOT be happening. The false claims stem from articles published by unreliable websites seeking clicks with misleading headlines.
The Social Security Administration (SSA) says via an alert at the top of pages on its official website that “Reports of a $600 payment increase in June are FALSE. NO COLA increase will occur UNTIL January 2025.”
Congress would have to pass a bill to increase Social Security benefits prior to next year’s potential COLA increase, which has not happened.
SSA told the website VERIFY it would notify people directly about any updates or increases to their monthly Social Security payments and announce them on its website.
The scam articles created by online content farms claim to inform readers about “exclusive” or “new” benefits that don’t actually exist with the goal of drawing as many people as possible to their websites, which have numerous advertisements.
SSA says people should reference its scam and fraud resources to understand how to spot common Social Security scams.
1 in 3 receives less from Social Security than expected
Research released earlier this year from Nationwide found 36% of Social Security beneficiaries reported receiving less in Social Security benefits than they expected, while only 9% said they receive more than expected. About 56% receive about what they expected.
The Social Security Administration reports that the estimated average monthly Social Security retirement benefit for Jan. 2024 was $1,907, including this year’s 3.2% COLA increase. That’s up from $1,767 as of Dec. 2023 before the COLA raise.
SEE ALSO:
• 2025 Social Security COLA Forecast Ticks Up
• Why Social Security Fix Needs to Happen Sooner vs. Later: Munnell