The Bureau of Labor Statistics Consumer Price Index (CPI) has historically been used to inform Social Security Cost of Living Adjustment (COLA), which increases Social Security payments relative to inflation to maintain its purchasing power.
The August 2024 CPI report was published today, and the numbers may shrink the projected 2025 Social Security COLA.
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The CPI update shows that consumer prices rose a modest 0.3% in August 2024, with an overall inflation rate of 2.5%. This marks the smallest 12-month increase since February 2021.
Core inflation, which excludes volatile factors like food and energy, grew steadily again at 3.2%, matching July 2024’s core CPI and most Wall Street forecasts.
How the CPI update will affect the 2025 COLA projection
While experts believe the easing of inflation will likely result in a 0.25% interest rate cut from the Fed, the decrease of CPI from 2.9% to 2.5% also means that the 2025 COLA will likely be even lower than anticipated.
The Social Security Administration announces next year’s COLA in October, making September the most critical indicator for COLA calculations.
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COLA hasn’t been below 3% since 2020, but the August CPI indicates that the adjustment will only be 2.5% for 2025, despite the relatively high price of consumer goods.
The Senior Citizens League calculates that a 2.5% COLA would raise the average retiree's Social Security Payment to $1,920, an increase of $48 per month. While this adjustment is lower than the past few years, the twenty-year COLA average is 2.6%, making the 2025 projections in line with historical data.
However, the adjustment to Medicare Part B premiums won't be announced until 2025.
While inflation is the catalyst for increased costs of living, many believe that the high cost of goods is only one piece of the puzzle and that adjustments should also consider other factors. Retirees now argue that COLA isn’t keeping pace with the goods and services most seniors spend the most on, such as food, rent, hospital services, medication, and utilities.
Though inflation is easing, prices remain high — 80% of seniors noted that the monthly cost of essentials has increased over the past 12 months.
Top COLA policy recommendations
The 2025 COLA may leave some seniors feeling uneasy since COLA may not increase payments enough to cover monthly expenses.
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Three in five Social Security disability beneficiaries are concerned about their future finances based on the 2025 COLA projections, and 60% of those receiving Social Security have considered earning supplemental income to offset a lower COLA.
However, there are specific policy changes that retirees and beneficiaries support that could make social security payments more effective for Social Security recipients:
- 58% of beneficiaries support COLA increases that accurately reflect the growing cost of living.
- Half (49%) of beneficiaries support the government providing extra financial assistance for essentials like housing and healthcare.
- 45% support setting a minimum for guaranteed benefits, ensuring some financial security.
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