The 2025 Social Security COLA could be the biggest we’ve seen in a long time. Here’s why this is bad news for seniors The motley fool

We won’t learn the official Social Security 2025 cost of living adjustment (COLA) until October, but recent estimates put it somewhere around 2.57%. That’s less than the 3.2% increase beneficiaries received this year and well below the 8.7% increase we saw in 2023.

A 2.57% increase would add about $49 to the average Social Security check of $1,917 as of May 2024. It’s not much, but it could be the biggest increase seniors can expect for years to come. Below, we’ll look at why and what you can do to help stretch your checks as far as possible.

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Smaller COLAs may be on the horizon

Social Security COLAs are based on changes in third-quarter average data from the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W). The CPI-W measures the cost of a group of common goods and services. Its values ​​increase slowly over time due to inflation, although some years it increases faster than others.

The year 2022 saw rampant inflation, so the difference between the third quarter CPI-W 2022 and 2021 data was quite high – 8.7%. That’s why seniors saw such a large Social Security COLA that year. Inflation slowed throughout 2023, so we ended up with a smaller, but still above average, COLA of 3.2% for 2024.

Inflation may not have slowed as quickly as everyone had hoped, but it has still declined throughout 2024. That’s why the 2025 COLA is expected to be even lower than this year’s.

The Congressional Budget Office (CBO) expects this trend to continue. Its baseline projections through 2034 estimate that COLAs over that period will fall between 2.2% and 2.5%. Of course, this could change if inflation rises. But if current projections hold true, seniors shouldn’t expect any big increases in their Social Security checks in the coming years.

What does this mean for the elderly?

This is disheartening for seniors, especially since data shows that Social Security has lost 36% of its purchasing power since 2000. Many blame this on the fact that the government uses the CPI-W to calculate COLAs, instead of the Consumer Price Index for Seniors (CPI-E), which many say better reflects the spending habits of seniors. Switching to this index would result in larger COLAs in most years, according to the League of Senior Citizens.

But since that change seems unlikely in the near future, it’s up to seniors to figure out how to help their Social Security checks go as far as possible. Budgeting well and relying on personal savings if you have some helps a lot. Some may also choose to work at least part-time in retirement to give themselves access to a steady income.

Those who have not yet registered for benefits should try to time their Social Security claim based on their financial situation and life expectancy. Those who already claim may consider suspending Social Security benefits at their full retirement age (FRA) if they can afford it. This temporarily stops your benefits, but also increases your checks by 2/3 of 1% per month. This continues until you ask for benefits to start again or qualify for your maximum benefit at age 70.

There is no easy answer here, so we have to take it step by step. When the government announces the 2025 COLA in October, then you’ll be able to estimate what your benefit will look like next year and start making a plan for how to make the most of it.