2025 Social Security COLA Update: How Much Will Benefits Rise?

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Next week, the Bureau of Labor Statistics (BLS) is set to release the Consumer Price Index (CPI) report for May. This report is crucial for seniors as it provides a clearer picture of the 2025 Cost-of-Living Adjustment (COLA) that may be applied to their Social Security benefits next year.

In the current year, the Social Security Administration (SSA) granted a 3.2 percent increase in benefits, which was based on the changes in the CPI for Urban Wage Earners and Clerical Workers (CPI-W). This followed an unprecedented 8.7 percent increase in 2023, driven by rapid inflation that significantly eroded the purchasing power of those dependent on SSA benefits.

Projected 2025 COLA and Current Economic Indicators

The Federal Reserve Bank of Cleveland recently published its forecast for the May CPI, predicting a modest increase of 0.1 percent. This forecast suggests that inflation is slowing, which in turn implies that the COLA for 2025 might be lower compared to this year’s adjustment.

The Senior Citizens League (SCL), an advocacy group for seniors, has shared its projections for the 2025 COLA. Currently, they estimate a 2.6 percent increase in benefits. However, this figure is subject to change as there are still several months of economic data yet to be analyzed. Initially, the SCL predicted a 1.75 percent increase, but this estimate was revised upward following recent CPI reports indicating persistent inflationary pressures in essential sectors such as housing and energy.

How the SSA Determines the COLA

The SSA’s method for calculating the annual COLA involves comparing the average CPI-W for the months of July, August, and September of the current year to the average for the same period in the previous year. To illustrate, the average CPI-W for these three months in 2023 was 301.253.

In April of this year, the CPI-W registered at 307.811. If the COLA were to be calculated based on these figures, beneficiaries could expect an approximate increase of 2.1 percent.

What This Means for Social Security Beneficiaries

The upcoming BLS report will be a key factor in determining the final COLA for 2025. With inflation appearing to slow, as indicated by the Federal Reserve Bank of Cleveland’s forecast, seniors might see a smaller increase in their benefits compared to the previous years. However, the final adjustment will depend on the economic data from the next few months.