Social Security’s 2025 cost-of-living adjustment (COLA) is set to do something that hasn’t happened in 32 years

In May, more than 51 million retired-employee beneficiaries received an average Social Security test of $1,916.63, the equivalent of roughly $23,000 on an annual basis. Even though the US government’s retirement program is not succeeding in making its recipients rich, the source of revenue it provides is helping to build a financial base for many senior citizens.

In April, nationwide pollster Gallup surveyed retirees to find out how essential their Social Security source of revenue is to meeting production needs. 88% of respondents said their Social Security payments represent both a “large” or a “small” source of revenue. In fact, annual surveys by Gallup for over twenty years have shown that 80% to 90% of retirees would attempt to meet their expenses without Social Security.

With at least 9 out of 10 retirees relying on their Social Security test in some capacity, it should come as a miracle that the cost-of-living adjustment (COLA) appears all the way to the second of October. The most joyously awaited announcement every 12 months.

What function does Social Security’s COLA perform, and how is it calculated?

As you have almost certainly noticed, the prices of the products and services and products you receive vary constantly. They may be able to build up (referred to as inflation) or reduce (deflation) over some period of time. The job entrusted to Social Security’s COLA is to account for price adjustments across a vast basket of goods and services and products and ensure that these changes are reflected in the source of revenue that beneficiaries receive.

In more practical terms, if the associated fee for a basket of products and services consistently purchased by senior citizens increases from year to year, the Social Security assessment should be adjusted, preferably through the same percentage. It should be ensured that the beneficiaries do not lose any energy in shopping.

Before 1975, rhyme or reason was once denied to changes in the cost of living. They were passed arbitrarily by elite sections of Congress, with zero changes being made throughout the 1940s.

Starting in 1975, the Shopper Value Index for Urban Wage Earners and Clerical Employees (CPI-W) was the old inflationary measure through Social Security for calculating annual COLAs. The CPI-W has 8 primary 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 at each age, which can then be compared to previous months or years to determine whether inflation or deflation has taken over the playing field. Can be done easily.

Calculating Social Security’s cost of living adjustment is really easy. Flows The average trailing-12-month CPI-W reading from 0.33 quarters of the year (most readings from July to September in the COLA calculation are outdated) is compared to the average CPI-W reading from 0.33 quarters of the year. First 12 months. If the average study increases, inflation has leveled the playing field and beneficiaries will get more benefits in the coming year.

For those who are curious, the additional percentage in the average third quarter CPI-W from one year to the next, computer rounded to the last 10th, determines the COLA for the following year.

Above average inflation over the past three years has pushed up COLAs. US Inflation Insights via YCharts.

Social Security’s cost of living adjustment did so in 1993

Even though we don’t yet have any CPI-W readings to rely on for the 2025 COLA calculation, year-to-date CPI-W readings through 2024 give big clues as to what’s going to happen. Specifically, the CPI-W reading shows that Social Security’s COLA is poised to hit a level that no one has seen since 1993.

In mid-June, the US Bureau of Labor Statistics released its May inflation report, which showed that the CPI-W had increased by 3.3% on a trailing 12-month basis. That was one-tenth less than the April inflation record of 3.4%. (Note: This article was written before the June inflation record was released on July 11.)

Life consumer inflation rates eased ever so slightly in May, at least one estimate nonetheless suggests Social Security’s cost of living adjustment could make historical past in 2025.

According to individual Social Security and Medicare coverage analyst Mary Johnson — who in the past worked for the nonpartisan senior advocacy team The Senior Electorate League before her new departure — the 2025 COLA is not set to come in at 3%.

According to Social Security’s COLA Monitor document on the last twenty years, a 3% cost-of-living adjustment is a nice-sounding big 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).

Over the past three years, however, 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 see their valuations increase by 5.9%, 8.7% and 3.2%, respectively. The 8.7% increase in the maximum year was the largest since 1982, and the largest nominal-dollar increase in Social Security assessments since the program’s inception.

Where issues become “historic” is if Johnson’s 3% COLA estimate proves correct. If so, it could be the first time in 32 years that 4 consecutive COLAs totaled a minimum of 3% (from 1988 to 1993 COLAs ranged from 3% to 5.4%).

In dollar terms, a 3% cost-of-living adjustment would benefit the average retiree by about $57 per age in 2025. Meanwhile, disabled workers and survivor beneficiaries will see their per month payments. Building through $46 and $45, respectively.

Retirees keep getting the bottom end of the stick

On paper, you might think that four years of COLAs above average would make retirees look good — although that couldn’t be further from reality.

In May of that year, when the Senior Electorate League released its 2024 COLA guidance, it also provided information about when to account for cumulative COLAs for price changes in a huge basket of products from the beginning of the 21st century. and services and products frequently purchased by senior citizens. While total COLAs increased by 78% between January 2000 and February 2023, the price of a handful of products and services received by retirees increased by a combined 141.4%.

The result of research by the Senior Electorate League is that the Social Security source of revenue has lost 36% of its purchasing power since the beginning of this century.

The biggest factor that is responsible for increasing the consumer inflation rate are the bills that senior citizens depend on the most. Compared to the average working American, senior citizens spend a much larger portion of their monthly funds on safe havens and hospital treatment.

Safe Haven is of paramount importance within CPI-W of any division. With the Federal Reserve attempting its most competitive rate-hike cycle in four decades, loan rates have soared, and gross sales of existing homes have declined. It is no surprise that rent inflation continues to remain high, which has boosted the CPI-W.

In recent months, we have seen the inflation rate of scientific services and products 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 “boost” large enough to offset the inflation that retirees will face. Struggling these days. Overall, retirees are at risk of getting the bottom of the stick again in 2025.