In April, nationwide pollster Gallup surveyed retirees to find out how important their Social Security source of revenue is to meeting expenses. 88% of respondents said their Social Security payments represent both a “large” or a “small” source of revenue. Truth be told, Gallup’s annual surveys over 20 years have shown that 80% to 90% of retirees will attempt to meet their expenses without Social Security.
With at least 9 in 10 retirees relying on their Social Security test in some capacity, it will come as no surprise that cost-of-living adjustments (COLAs) could unravel through the second day of October. The most eagerly awaited announcement every 12 months.
What goal does Social Security’s COLA serve and how is it calculated?
As you have surely noticed, the prices of the products and services you receive vary constantly. They are capable of building up (referred to as inflation) or moderating (deflation) over time. The task assigned to Social Security’s COLA is to account for price adjustments across a broad basket of products and services and ensure that those changes are reflected within the source of revenue beneficiaries receive.
In more effective terms, if payments for a range of products and services regularly purchased by senior citizens increase from one year to the next, Social Security tests would, preferably, have to remain in the same proportion so that its Can be protected. Beneficiaries do not have to waste any energy in shopping.
Before 1975, there was once a disagreement rhyme or reason for changes in the cost of living. They were passed arbitrarily through special sessions of Congress, with zero changes made during the forties.
Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Employees (CPI-W) was the permanent inflation measure adopted by Social Security to calculate annual COLAs. The CPI-W has 8 main expenditure sections and several subcategories, all of which have their own specific weights.
Those individual weights are what allow the CPI-W to be broken down to a single figure of each movement, which is easily compared to previous months or years to determine whether inflation or deflation has taken over the park. May go.
Calculating Social Security’s cost of living adjustment is really easy. The average trailing-12-month CPI-W reading is compared to the average CPI-W reading from the 0.33 quarter of the wave year (only the July to September readings are worn into the COLA calculation). First 12 months. If the average reading increases, inflation has increased and beneficiaries will receive more benefits in the coming year.
For those who are curious, the percentage residual in the average third quarter CPI-W from one year to the nearest year, rounded to the last 10th of a percent, determines the COLA for the next year.
Social Security’s cost of living adjustment was eliminated in 1993.
Despite the fact that we do not yet have any CPI-W readings that rely on the 2025 COLA calculation, year-over-year CPI-W readings through 2024 will serve as rough clues as to what to expect. Specifically, the CPI-W reading shows that Social Security’s COLA is going to do a thing that no one has seen since 1993.
In mid-June, the US Bureau of Labor Statistics released the May inflation report, which showed that the CPI-W had increased by 3.3% on a trailing 12-month basis. This was 10% below the April inflation record of 3.4%. (Note: This article was written on July 11, before the June inflation record low.)
Given the continued modest decline in the inflation rate in May, at least one estimate suggests Social Security’s cost of living adjustment could make history in 2025.
According to individual Social Security and Medicare coverage analyst Mary Johnson — who previously worked for the nonpartisan senior advocacy task force The Senior Voters League before her recent resignation — the 2025 COLA is poised to return to 3%.
According to Social Security’s COLA overview document over the past 20 years, a 3% cost-of-living adjustment is a good-looking obesity proposal. Since 2010, there were three years without a COLA (2010, 2011, and 2016), with every other 12 months passing with the smallest COLA on record (0.3% in 2017).
However, over the past three years, the change in Social Security’s cost of living has come in well above the two-decade average of 2.6%. In 2022, 2023 and 2024, beneficiaries saw their tests increase by 5.9%, 8.7% and 3.2%, respectively. The 8.7% increase at year’s end was the largest since 1982, and the largest nominal-dollar increase in Social Security tests since the program’s inception.
Where issues become “historic” is if Johnson’s 3% COLA estimate proves correct. If this is the case, it would be the first time in 32 years that 4 consecutive COLAs did not total less than 3% (from 1988 to 1993 COLAs ranged from 3% to 5.4%).
In dollar terms, a 3% cost-of-living adjustment would yield a benefit of about $57 per move for the average retiree in 2025. Meanwhile, disabled employees and survivor beneficiaries will see their per-month payment. Build through the mean of $46 and $45 respectively.
Retirees step up to get stick cut finish
On paper, you might assume that four years of above-average COLAs would make retirees look pretty — but that couldn’t be further from reality.
In late May, when the League of Senior Voters released its 2024 COLA guidance, it also released a study that compared price changes in a huge basket of cumulative COLAs since the beginning of the 21st century. Products and services frequently purchased by senior citizens. While overall COLAs increased by 78% between January 2000 and February 2023, the price of a handful of products and services commonly received by retirees increased by 141.4%.
The result of research by the League of Senior Voters is that the Social Security source of revenue has lost 36% of its purchasing power since the beginning of this century.
The most important factor that is responsible for increasing the inflation rate again and again are the bills that senior citizens are most subject to. Compared to the typical working American, seniors spend a significantly higher share of their monthly finances on shelter and hospital treatment.
Safe Haven is of greatest importance within CPI-W of any division. With the Federal Reserve attempting its most competitive rate-hike cycle in four years, loan rates have soared, and gross sales of existing homes have declined. Now not uncommon, rent inflation has remained consistently high, adding spice to the CPI-W.
In recent months, we have seen the inflation rate of medical products and services rising again.
Even if Social Security’s 2025 cost-of-living adjustment is available at 3%, or barely higher than Johnson’s estimate, it is unlikely to constitute a massive “increase” to offset the inflation that retirees will face. People are struggling these days. Overall, in 2025, once again, retirees are in danger of getting the last end of the stick.
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Social Security’s 2025 cost-of-living adjustment (COLA) is set to do something that hasn’t happened in 32 years, initially published by The Motley Idiot.
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