Your 2025 Social Security Increase Could Be the Lowest in Years. But There's a Silver Lining.

We're still nearly seven months away from finding out how big is the raise Social Security beneficiaries will receive next year. However, it's not too soon to begin thinking about it.

The Senior Citizens League (TSCL), a nonprofit organization that focuses on issues affecting seniors, is already keeping an eye on what the next Social Security cost-of-living adjustment (COLA) might be. Based on what TSCL is seeing, your 2025 Social Security increase could be the lowest in years. But there's a silver lining.

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Expect a lower Social Security COLA than in recent years

Each month, the Bureau of Labor Statistics provides the latest inflation numbers. Those numbers include the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which the Social Security Administration (SSA) uses in its annual COLA calculation.

Also each month, TSCL reviews the latest CPI-W data to update its forecast for the next Social Security increase. The organization now predicts that the COLA will be 1.75% in 2025. Anyone who has received Social Security benefits for a while will immediately realize that this estimated increase is much lower than what they've received in recent years.

The Social Security COLA for 2024 was 3.2%, nearly double what TSCL is projecting for 2025. Last year's increase was a whopping 8.7%, almost five times greater than the current forecast. The 2022 COLA of 5.9% was also well above the increase that TSCL thinks Social Security beneficiaries will receive next year.

You would have to go back to 2021 to find a Social Security increase that's lower than what's likely in 2025. That year, the SSA set the COLA at 1.3%.

Looking on the bright side

Keep in mind that 1.75% is only a prediction at this point. The SSA compares the average CPI-W from the third quarter of the current year with the average for the third quarter of the previous year to calculate the annual COLA. It's possible that inflation could moderate, bringing an even lower increase. It's also possible that inflation could again pick up steam and result in a higher COLA.

Let's assume, though, that the actual 2025 Social Security increase will be in the ballpark of TSCL's current projection of 1.75%. Is that bad news for retirees? Not really.

A lower COLA means that inflation is lower. And that, in turn, means that the prices of goods and services aren't rising as rapidly as they have in the past.

It's especially important to remember that Social Security increases are given after the fact. In other words, the adjustment in a given year is based on how much inflation rose in the previous year (specifically, the third quarter of that year). Seniors will have already paid the higher costs well before they receive the COLA.

Because of this delayed timing, lower increases (and preferably no increase at all) are actually better for Social Security beneficiaries from a financial standpoint.

A tarnished silver lining

There truly is a silver lining if the 2025 Social Security COLA is lower than in recent years. However, that silver lining is tarnished somewhat, unfortunately.

Why? The CPI-W inflation metric that SSA uses to calculate COLAs doesn't accurately reflect the costs that seniors pay. In particular, healthcare costs often rise more quickly than the CPI-W indicates. As a result, a low COLA might not be enough to offset the increased costs that retirees incur.

This problem could be largely addressed by using another inflation metric called the Consumer Price Index for the Elderly (CPI-E). Replacing the CPI-W with the CPI-E would literally take an act of Congress, though.

But just as it's not too soon to start thinking about what the 2025 COLA will be, it's not too soon for Congress to begin considering changes that will help retirees who depend on Social Security.

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