As we approach the second half of the year, the extra boost from the 2024 Cost of Living Adjustment (COLA) has already become a thing of the past. COLA is a crucial topic for retirees and other Social Security recipients because it directly influences how much their payments will increase each year.
Recently, the Senior Citizens League (TSCL), one of the nation’s largest nonpartisan senior groups, announced a new projection for the next COLA increase. Based on their forecasts, retirees are likely to see a 2.57% adjustment, which is lower than the current 3.2% COLA.
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Projected COLA for 2025
While seniors won’t receive firm information until October when the official 2025 COLA is confirmed, several aspects are already clear about the upcoming rise in Social Security benefits. According to TSCL, the projected 2.57% adjustment is a decrease from the 3.2% increase in 2024, and significantly lower than the rises seen in 2022 (5.9%) and 2023 (8.7%). This lower adjustment may disappoint many retirees, but it’s important to start preparing for this reality as the year progresses.
Why COLA Matters
Understanding COLA is vital for retirees and Social Security beneficiaries because it directly affects their monthly benefits. The cost-of-living adjustment is calculated using a specific formula that includes the Consumer Price Index for Clerical and Urban Wage Earners (CPI-W). The SSA compares the third-quarter average of the CPI-W index to the third quarter of the previous year to determine how much it has changed. This difference is used as the basis for the COLA.
For instance, if the Q3 CPI-W data shows a 3% increase in prices, retirees will receive a 3% COLA. Since we are still in the early stages of Q3, we don’t have all the necessary data yet. However, based on CPI-W statistics for the first half of this year, experts can project the likely increase for retirees. Trends in the CPI can help anticipate upcoming changes, and current data suggests that prices are not rising as sharply as they have in recent years.
Factors Influencing the COLA
Several factors contribute to the projected lower COLA for 2025. The primary reason is the relatively stable or declining inflation rates through 2024. As inflation has moderated, the overall increase in the cost of living has slowed, leading to a smaller adjustment for Social Security benefits.
Another factor is the methodology used to calculate COLA. The reliance on the CPI-W means that if prices for the goods and services included in this index don’t increase significantly, neither will the COLA. This is crucial for retirees to understand, as it affects their expectations and financial planning.
Preparing for a Lower COLA
Given the projections, retirees should start preparing for a lower COLA in 2025. While the exact figure will be confirmed later in the year, it’s prudent to anticipate a more modest increase in benefits. This means reviewing and possibly adjusting personal budgets to ensure financial stability despite the smaller adjustment.
As the year progresses, it’s becoming clearer that the 2025 COLA will likely be lower than in previous years. While this news might be disappointing, knowing the factors behind the adjustment and preparing accordingly can help retirees manage their expectations and financial plans. Staying informed about these changes is crucial for making the most of Social Security benefits and ensuring long-term financial health.
FAQs
What is the projected COLA for 2025?
The projected COLA for 2025 is 2.57%.
How is COLA calculated?
COLA is calculated using the CPI-W index and comparing Q3 averages year-over-year.
Why is the 2025 COLA expected to be lower?
Lower inflation rates through 2024 have led to a smaller expected increase.
When will the official 2025 COLA be confirmed?
The official 2025 COLA will be confirmed in October.
How should retirees prepare for a lower COLA?
Retirees should review and adjust their budgets to account for a more modest increase in benefits.
