Millions of older Americans collect a benefit from Social Security each month. For many of them, that money serves as their primary source of income. That's why Social Security's cost-of-living adjustments, or COLAs, are so important for many retirees.
Without automatic COLAs, seniors on Social Security could be looking at the same monthly benefit year after year. For those without additional income to fall back on, that practically guarantees a loss of buying power over time. The Social Security Administration (SSA) doesn't want that to happen, which is why automatic COLAs were introduced in 1975.
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Meanwhile, at this stage of the year, many Social Security recipients are eager to know what next year's COLA will amount to. And unfortunately, it's too early to have an answer.
The reason is that Social Security COLAs are calculated based on third-quarter changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Since September isn't over yet, we can't get a CPI-W reading for the month until October. So seniors on Social Security will need to sit tight until October 10 when an official COLA gets announced.
However, it's possible to come up with an estimate of 2025's Social Security COLA based on the inflation readings that are available to date. And now that August's CPI-W reading has been released, experts have been able to produce a fresh COLA estimate for the new year. But it's sort of a good news/bad news situation.
Seniors should brace for a smaller 2025 COLA
Based on August's CPI-W reading, the nonpartisan Senior Citizens League is projecting that 2025's Social Security COLA will amount to 2.5%. This is a notch below its previous 2.57% estimate . It's also lower than the 3.2% COLA Social Security recipients got at the start of 2024.
At first, news of a potentially smaller COLA might seem disappointing. But there are a couple of key things to keep in mind.
First, that 2.5% estimate isn't set in stone -- that's why it's only an estimate. As mentioned, it's impossible to calculate a precise Social Security COLA without a complete set of inflation data.
Also, a smaller Social Security COLA is indicative of cooling inflation. That alone could spell relief for retired workers who get most or all of their monthly income from Social Security.
If grocery, gas, and other prices aren't rising as rapidly as they once were, Social Security benefits are apt to go further. For this reason, a 2.5% COLA isn't necessarily bad news.
Sit tight until October 10
October 10 is when the next CPI-W reading should become available. From there, the SSA should be able to put out an official COLA announcement, thereby putting an end to the guesswork.
It pays to check the news section of the SSA's website for word of a 2025 COLA. But if you're trying to plan ahead financially for 2025, it's not a bad idea to use 2.5% as a starting point with the understanding that that number could wiggle -- either upward or downward -- in the coming weeks.
However, it's also fair to assume that barring a drastic shift in inflation in the next few weeks, Social Security's official 2025 COLA won't be so far off from 2.5%. That gives you a benchmark to work with as you make your financial decisions.
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