The Social Security cost-of-living adjustment (COLA) forecast for 2025 was just updated. Outlook extra grim for retirees.

The Social Security program has gone through several notable changes every past year to keep benefits aligned with costs and wages, although the cost-of-living adjustment (COLA) is the most expected. COLAs are intended to reimburse Social Security recipients for purchasing energy that was lost in the past. Still, whether COLAs are actually accomplishing that task is questionable.

For example, according to The Seniors Electorate League, two-thirds of seniors surveyed said the 2024 COLA did not protect the larger family expenses they have incurred so far. Similarly, according to the Institute for Employee Benefit Analysis, some retirees surveyed fear that significant spending cuts will be required to keep up with inflation.

Statistics show that Social Security benefits have lost purchasing power. Sadly, the latest 2025 COLA forecast suggests the situation may worsen in the near future. Here’s what you must know.

Social Security benefits are (yet) on date to get 2.6% COLA in 2025

Social Security benefits get a cost-of-living adjustment in 2025. The size of that COLA will depend on how inflation changes in the third quarter (July to September) of 2024. In this situation, inflation is slowing using a subset of the Shopper Worth Index called CPI-W.

While the Social Security Administration may not calculate the 2025 COLA until September, CPI-W information will be available in early October. In the interim, the Senior Electorate League (TSCL) may provide some relief to the situation. TSCL is a non-profit advocacy task force that, among various activities, produces CPI-W data every 30 days to produce predictions about the subsequent COLA.

On July 11, TSCL updated its COLA forecast with subsequent June CPI-W holiday information. Social Security benefits are now expected to grow 2.63% in the future, up from the prior forecast of 2.57%. This may seem like an evolution, although the numbers are essentially the same. COLAs are rounded to the next 10th of a percent, and each figure is rounded to the nearest 2.6%.

With this in mind, if Social Security recipients certainly get a 2.6% COLA in the future, the benefits the average retired-worker would receive would increase by approximately $49.77 per year ($597.24 for the past total) and the average spouse would receive The benefits will increase. Add up to about $23.63 per year (total $283.56).

Social Security benefits are on the verge of losing purchasing power in 2025

The CPI-W measures inflation in response to the spending behavior of hourly workers. Some coverage experts consider this problematic. The pool of workers tends to be younger than Social Security beneficiaries, the majority of whom are retired workers, and the younger society spends money differently than senior citizens.

Generally speaking, retired workers spend extra on housing and hospital treatment, and not on transportation and schooling. These discrepancies make the CPI-W an inferior measure of inflation where Social Security COLAs are included. Joel Eskowitz, senior director of Social Security at AARP, says the Consumer Price Index for the Elderly (CPI-E) is a more appropriate metric for calculating the COLA.

The CPI-E measures inflation based on the spending behavior of people above 62 years of age, and it puts additional weight on categories such as housing and hospital treatment. The CPI-E often outperforms the CPI-W by two-tenths of a percent. In other words, assuming the CPI-E is actually a better inflation gauge for Social Security recipients, COLAs are two-tenths of a percent too small, meaning benefits are slowly losing purchasing power. .

Sadly, this development has become more pronounced in 2024. The table below shows how the CPI-E and CPI-W have changed in each year since the past:

Information supplied: US Bureau of Exertion Statistics.

As proven above, CPI-E inflation has outstripped CPI-W inflation by three-tenths of a percent over the lifetime. This suggests that the 2025 COLA is set to reduce inflation by a larger margin than usual. As a result, profits stand to lose an above-average amount of purchasing energy in the coming period.

Note, TSCL expects 2.6% COLA in the upcoming period. This estimate is in response to CPI-W inflation, although the chart above shows that COLA would need to be three-tenths of a% higher to keep up with CPI-E inflation. The balance between a 2.6% COLA and a 2.9% COLA isn’t much — about $6 per year for retirees and $3 per year for spouses — however, every penny counts, and the lost purchasing power adds up over the future. .

Furthermore, the latest COLA forecast was particularly severe as the gap between the CPI-E and CPI-W has now widened for two consecutive months. If that growth continues, the 2025 COLA will likely reduce inflation by as much as three-tenths of a percent, meaning gains could lose a lot of purchasing energy.