The June inflation report brought welcome news for savers: Inflation actually dropped 0.1% compared to May. This is the first time this has happened since the start of the COVID-19 pandemic. It means (slightly) cheaper prices on essential goods and a little more breathing room in household budgets.
But it also creates a bit of a predicament for those on Social Security. We're still a few months out from an official 2025 cost-of-living adjustment (COLA) announcement, but here's what we can guess about it based on the latest inflation data.
Image source: Getty Images.
The relationship between inflation and Social Security COLAs
Social Security COLAs and inflation are tied closely together. The government sets the COLA for the following year by looking at the difference in average third-quarter inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) between the current year and the previous year.
So to calculate the 2025 COLA, the government looks at the CPI-W values for July, August, and September of 2023 and 2024. The percentage difference will be the COLA for 2025. We obviously don't know what that's going to be yet, as we're only a few weeks into the third quarter of 2024. The official 2025 COLA announcement isn't due until Oct. 10, 2024.
But there are a few things we can infer based on recent statistics. Inflation has been dropping little by little over the past few months. This will likely translate into smaller increases to the CPI-W in the coming months. If this trend continues, it's highly likely that the 2025 COLA will be smaller than many expected at the beginning of the year. That means smaller increases to benefits.
What might the 2025 Social Security COLA look like?
The latest Social Security COLA estimate for 2025 is about 2.63%, according to The Senior Citizens League (TSCL). This is smaller than the 2024 COLA of 3.2%. That increased the average monthly Social Security benefit by $59 per month.
The 2025 estimate will likely continue to change as we near the official announcement date, but it's safe to say it's not going to add hundreds of dollars to most seniors' checks. This might be discouraging, as many seniors feel their expenses are rising faster than the boosts they're getting from Social Security COLAs.
Politicians have talked about possible legislation changes to increase Social Security COLAs for years, but as of now, there are no definitive plans in the works. So it falls largely to seniors to figure out how to make ends meet.
After the official COLA announcement, you should be able to estimate what your checks will look like in 2025. Or you can wait until December when the Social Security Administration sends out personalized COLA notices to all beneficiaries. Once you know roughly how much you'll get per month, you can start planning for what Social Security doesn't cover.
Hopefully, slowing inflation will help ease some of the burden. But you'll probably have to rely upon personal savings, income from a job, or other government benefits to help you cover your costs. Anticipating your monthly spending and figuring out how much income you need from other sources ahead of time will help you feel more prepared.
The Motley Fool has a disclosure policy .
Most Popular
Comments / 0