Over the past 20 years, the average cost-of-living adjustment (COLA) has been around 2.6%, as reported by the Senior Citizens League. However, there’s a possibility that the Social Security COLA could see a significant increase to 3.2% in 2025. This forecast comes from Mary Johnson, an independent analyst specializing in Social Security and Medicare, and a former analyst with the Senior Citizens League. She initially predicted a 3% increase in COLA for 2025, but recent data suggests it could be even higher. The official announcement for the 2025 COLA will be made in October.
COLA is determined based on the consumer-price index for urban workers, which places more emphasis on expenses like transportation, food, apparel, and other costs typically incurred by urban non-retirees. The latest CPI report revealed a rise in the cost of consumer goods and services in April, although the rate of inflation has slowed down. Johnson pointed out that this higher inflation indicates a continued erosion in the purchasing power of consumers.
The rising costs of housing or shelter, electricity, and home care are particularly burdensome for older adults. Johnson highlighted that housing accounts for about half of the budget for retired and disabled Americans, so a 5.5% increase in shelter costs is especially challenging. She also noted that food prices remain a significant concern for seniors. Additionally, the cost of outpatient services, car insurance, and repairs has also gone up.
Analyst predicts higher-than-expected 3.2% Social Security COLA
These cost increases have outpaced the 3.2% COLA increase for 2024, making it difficult for older adults to keep up. While the COLA is not technically a raise, it serves as a crucial benefit adjustment that reflects inflation and can provide much-needed relief for the approximately 67 million Social Security beneficiaries.
This forecast follows a recent report from the Social Security and Medicare Board of Trustees, which warned of potential insolvency for Social Security in the near future.
In summary, the potential 3.2% COLA increase in 2025 reflects the ongoing challenges faced by older adults in maintaining their standard of living amidst rising costs. As Mary Johnson emphasized: “The higher inflation indicates that consumers are still experiencing an erosion in buying power,” highlighting the pressing need for adequate adjustments to support Social Security beneficiaries.