If you’re counting on Social Security benefits, here’s some important news, the Cost-of-Living Adjustment (COLA) for 2025 is expected to be lower than in recent years. Experts from the Senior Citizens League predict a modest increase of about 2.6%, which is a slight drop from their July estimate of 2.7% and significantly less than last year’s 3.2% adjustment.
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Why Is the COLA Decreasing?
The main reason is easing inflation. While lower inflation sounds like a good thing and it is for the economy overall it also means the annual increase in your Social Security check won’t be as large.
Even though inflation is slowing down, the prices of everyday necessities like food, housing, and utilities aren’t exactly getting cheaper. So, many retirees might still feel the pinch despite the COLA increase.
How Is the COLA Calculated?
The COLA isn’t just a random number pulled out of a hat. It’s based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the price changes of a basket of goods and services, including essentials like food, energy, and healthcare.
Each year, the Social Security Administration (SSA) looks at the CPI-W data from July, August, and September to decide how much benefits should increase. They compare the average prices from these months to the same period in the previous year. So, the final COLA for 2025 could still change depending on the upcoming inflation data, with the official announcement expected in October.
Changes in Wage Base Projections
It’s not just the COLA that’s changing, the SSA has also released new wage base projections. For 2025, the maximum earnings subject to Social Security taxes are expected to increase to between $174,900 and $175,500, up from $168,600 in 2023. This means higher earners will contribute more to the Social Security system.
Is there any other way to calculate COLA?
There’s been some discussion about changing how the COLA is calculated to better reflect the real expenses seniors face. One idea is to switch from using the CPI-W to the Consumer Price Index for Americans Age 62 and Over (CPI-E). The CPI-E puts more weight on healthcare costs, which tend to be a bigger burden for older adults.
However, these proposals haven’t gained much interest. Time is moving for the current administration to implement any significant changes before the next general election in November. If adjustments aren’t made soon, the system will continue as is, for better or worse.
When will I see the increase?
To put things into perspective, let’s break down what a 2.6% COLA increase could mean for you:
- If you currently receive $1,500 per month, your benefit would increase by about $39, bringing your monthly payment to $1,539.
- For those receiving $2,000 per month, expect an increase of approximately $52, totaling $2,052 monthly.
While any increase is better than none, it’s understandable that some might feel this adjustment doesn’t fully cover rising living costs.
What should I do?
As we await the official COLA announcement in October, it’s essential to keep an eye on the upcoming inflation data for August and September. These numbers will ultimately decide the exact increase you’ll see in your 2025 Social Security checks, which will start arriving in January 2025.
Remember, sometimes payments may come a bit earlier due to weekends or holidays, but generally, you can expect them in January as usual.
Conclusion
Navigating Social Security benefits can feel like walking through a confusion, especially with all these numbers and projections. While the expected lower COLA for 2025 might not be the news you were hoping for, staying informed helps you plan better for the future.
Keep an eye out for the official announcement in October, and consider budgeting accordingly to accommodate the expected changes. And who knows? If inflation takes an unexpected turn in the coming months, we might see these projections adjust once more.
FAQs
What is the expected COLA increase for Social Security in 2025?
The COLA increase for 2025 is expected to be around 2.6%.
Why is the 2025 COLA increase lower than previous years?
The lower COLA is due to easing inflation, which reduces the need for higher adjustments.
How is the Social Security COLA calculated?
The COLA is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
When will the official COLA for 2025 be announced?
The official COLA for 2025 will be announced in October.
How much could my Social Security check increase with a 2.6% COLA?
A 2.6% COLA could increase a $1,500 monthly benefit by about $39.
Are there proposals to change how the COLA is calculated?
Yes, some propose using the CPI-E index to better reflect senior living costs, but no changes have been made yet.
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