The latest projections for the annual cost-of-living adjustment (COLA) for Social Security recipients are causing concern as they continue to lag behind inflation rates. The Senior Citizens League (TSCL), a nonpartisan senior advocacy group, now predicts the COLA for 2025 will be around 2.57%, down from the 3.2% adjustment in 2024. Alex Moore, a Social Security and Medicare statistician with TSCL, stated that this prediction has been revised from an earlier estimate of 2.6% in July.
The group attributes the lower COLA to the current rate of inflation as measured by the Consumer Price Index (CPI) and the Federal Reserve interest rate. The Federal Reserve interest rate, which was 5.33% as of July, is said to account for roughly 23% of the COLA’s variance. The inflation rate in July was 2.9%.
The annual COLA is determined by using the Consumer Price Index for Urban Wage Earners (CPI-W) for the months of July, August, and September. This figure is compared to the same period from the previous year to calculate the adjustment.
Senior cost-of-living adjustment concerns
The CPI-W takes into account spending habits on items such as food, consumer goods, housing, healthcare, and more. While interest and inflation rates are declining, leading to an anticipated lower COLA, the high cost of goods continues to burden many Social Security recipients. A survey of 2,016 seniors conducted by TSCL found that 78% of respondents reported higher monthly expenses compared to last year.
Many seniors worry they won’t be able to afford essentials with just their retirement income. In 2023, the COLA was a record 8.7% before falling to 3.2% in 2024. If the current projection holds, it would be the smallest COLA increase since 2020, when the adjustment was only 1.3%.
The final COLA for 2025 will be announced in October and will take effect in January. The news of a potentially lower COLA is troubling for the millions of Social Security recipients who rely on these adjustments to keep up with the rising cost of living.
