It's not a given that seniors on Social Security will pay attention to inflation-related trends and track fluctuations in the Consumer Price Index (CPI) every month. But maybe they should. It's that index -- or more specifically, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a subset of the more broad CPI -- that dictates what Social Security's annual cost-of-living adjustments (COLAs) will amount to.
If you're wondering why Social Security COLAs would be based on changes in the costs incurred by urban and clerical workers, as opposed to the types of costs more commonly incurred by seniors, you're not alone. Advocates have been fighting for a big change in the way Social Security COLAs are calculated , but that's a discussion for another time. For now, let's talk about what next year's Social Security raise looks like as of July -- and why it's both positive and negative news.
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Next year's raise may be considerably lower than 2024's
In 2024, Social Security recipients saw their benefits rise 3.2%. Next year's COLA is shaping up to be much lower.
Based on the most recent inflation data available, the nonpartisan Senior Citizens League projects that 2025's Social Security COLA will be 2.63%. That's a notch higher than a previous estimate of 2.57% but also well below the raise seniors received at the start of 2024. And it's also a mixed bag.
The bad news is obvious -- it's a relatively small raise. The good news, however, is that a smaller Social Security COLA is indicative of cooling inflation. And ultimately, that may be more helpful to retirees than a larger Social Security raise.
Think about it this way. Let's say you received a $1,500 raise this year, but your rent also went up by $150 per month. That means your raise wasn't enough to cover that increase.
If you learn to manage your rent payments on your current income and get a $1,000 raise next year, but your rent then only rises by $50 per month, you're potentially in a much better place financially. In this situation, your raise can cover your rent because it increased at a slower pace.
It's sort of the same situation with regard to Social Security COLAs. A smaller raise may do seniors more good if it comes in conjunction with easing prices.
Let's also remember that easing inflation could help Social Security recipients stretch this year's COLA even further. If prices continue to moderate, some seniors may be in a position to bank a small portion of their Social Security checks for the rest of the year, thereby having more of a cushion come 2025.
It's too soon to get a truly accurate read on 2025's COLA
As of now, 2.63% is what next year's COLA is projected to amount to. But we won't get an official 2025 Social Security COLA announcement until October, because that number is ultimately based on third-quarter changes to the CPI-W from one year to the next.
As such, seniors shouldn't get too hung up on that 2.63% estimate because that projection could get better -- but it could also get a bit worse. So a good bet is to assess your expenses now and do what you can to try to save a bit of money during the remainder of 2024.
If your Social Security paycheck alone can't make that happen, consider joining the gig economy for an income boost. You may find that a small amount of gig work does a great job of keeping you busy and padding your bank account in a meaningful way.
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