It’s becoming more and more likely that Social Security beneficiaries are going to get a smaller cost-of-living adjustment in 2025 than they’ve been getting in recent years.
Next COLA Update: 2025 Social Security COLA Prediction Keeps Falling
Previous COLA Update: 2025 Social Security COLA Forecasts Recede Slightly
All COLA Updates: Social Security Cost of Living Adjustment (COLA)
“The Social Security cost-of-living adjustment for 2025 could be 2.7% based on the latest inflation data through June 2024, as the rate of inflation moderates.”
Mary Johnson
According to a pair of notable forecasts updated this morning based on the latest inflation data through June 2024, as the rate of inflation moderates, it’s looking like next year’s increase may not top 2.7%.
“The Social Security cost-of-living adjustment for 2025 could be 2.7% based on the latest inflation data through June 2024, as the rate of inflation moderates,” retired and now independent Social Security and Medicare policy analyst Mary Johnson said this morning. She is long known as one of the foremost experts in tracking potential COLA increases.
That 2.7% forecast is down from 3% in June and 3.2% in May—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 and 3.0% in April.
Johnson noted today that prices for categories of essential items such as food, shelter, electricity, hospital and outpatient medical services continue to outpace the overall rate of inflation. “Clearly persistently high prices for key essentials are causing distress for many older and disabled Social Security recipients,” Johnson said.
While moderating inflation means lower spending on certain categories of items, Johnson added that retired and disabled Social Security recipients spend about half of their household budget on shelter costs, which have grown by 5.4%.
TSCL COLA forecast rises slightly
Also today, nonprofit senior citizens advocacy group The Senior Citizens League updated its forecast for next year’s Social Security COLA—bringing it up marginally. “The 2025 COLA prediction is about 2.63%, up from 2.57% last month,” says Alex Moore, the Senior Citizens League’s Social Security and Medicare statistician and managing partner at Blacksmith Professional Services.
TSCL’s forecast, which uses a different methodology than Johnson, has hovered only slightly since April, staying in a narrow 2.57% to 2.63% range.
In its update today, TSCL noted that the rate of inflation, as measured by the Consumer Price Index used to calculate the Social Security cost-of-living adjustment (COLA), fell to 3.0% for June. Although easing inflation should relieve older consumers, TSCL said the rapidly increasing price of groceries the 2020s have seen thus far meant financial relief is still far away.
“From 2020 to 2023, the cost of the average grocery item with direct prices tracked by the CPI has risen by 24%. While eggs captured many headlines with a rise of 86%, many other key items, such as coffee, sugar, bread, and ham saw their cost increase by more than a third,” the TSCL release said.
In TSCL’s 2024 Senior Survey, which had more than 1,550 respondents from across the United States, 34% of retirees said they had visited a food pantry or applied for food stamps over the last 12 months. What’s more, 60% of respondents said food was the fastest-growing expense in their monthly budgets, which was more than double the next hardest-hit expense category, housing.
Based on today’s CPI data, average U.S. household spending is up $212 per month from a year ago and $470 from two years ago, but Americans’ average incomes have been outpacing inflation to offset those increases.
Annual Social Security COLA Adjustments
Official 2025 COLA announcement due in October
Both forecasts point to a significantly lower COLA than Social Security beneficiaries have received in the past 3 years as inflation spiked before beginning to moderate last year. In the past 5 years, the average COLA increase has been 4.14%, with a high of 8.7% in 2023 and a low of 1.3% in 2020 (SEE CHART).
The COLA is directly tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures inflation. Today’s release of June data showed the CPI-W increased 2.9% over the last 12 months, and the index was unchanged for the month prior to seasonal adjustment.
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 will be announced on Oct. 10, 2024.
SEE ALSO:
• Americans Want Action to Fix Social Security
• COLA Conundrum: 80% of Retirees Want Better Inflation Protection
• Why Social Security Fix Needs to Happen Sooner vs. Later: Munnell