It is estimated that about 70 million Americans who have Social Security benefits available will receive the smallest increase in their monthly checks since before the pandemic.Year after year, Social Security benefits are subject to an annual cost-of-living adjustment (COLA) that is based on inflation rates to ensure that monthly payments keep pace with rising costs.
Social Security beneficiaries obtained a COLA of 3.2% in 2024, a significant decrease from the COLA of 8.7% in 2023, which was the most considerable increase in the last 40 years, by 2025, using current inflation data from the Consumer Price Index, it is expected to have a COLA of 2.66% in 2025, according to The Senior Citizens League.
The projected increase was 2.6% and would be the lowest since 2020, when profits per month increased by only 1.3%. “With a 2.66% COLA forecast for 2025, it looks like seniors will continue to suffer the same financial insecurity next year as they did this year,” said Shannon Benton, executive director of The Senior Citizens League.
The COLA Increase Won’t Keep It up With the Inflation
The Senior Citizens League’s 2024 Senior Citizen Survey found that the overwhelming majority of respondents, 71%, indicated that the previous year’s 3.2% COLA wasn’t enough to keep up with rising household costs. That means a 2.66% increase next year could be even worse.
The cost of living adjustments are determined using data from the third quarter in the months of (July, August, and September) of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The inflation of those three months is added up, averaged and then the comparison is made with the average of the third quarter of the year that passed, and the percentage difference between the current year and last year works as the COLA rate for the next year.
The Social Security Administration (SSA) makes an official announcement, the annual COLA, in the month of October, which means that beneficiaries have to wait a few more months before knowing exactly how much their benefits will increase.
In the year 2023, an average of almost 67 million U.S. citizens, per month, receive Social Security benefits, for more than $1 trillion in total, in benefits paid throughout the year, according to the SSA. Social Security benefits account for about 30% of the income of Americans age 65 and older, the SSA said.
An Important Change in the COLA Calculation Proposed
The new federal legislation is seeking to make a change in the COLA calculations in order to better align benefits with the actual expenses experienced by older people.
The Benefits Boost and COLA for Seniors Act, introduced by Rep. Ruben Gallego, D-Ariz., proposes making changes to the COLA calculation for those who receive Social Security benefits.
If enacted, this bill would require the use of the Consumer Price Index for Americans age 62 and older to determine the COLA, making a replacement for the current use of the Consumer Price Index for urban wage earners and Administrative workers (CPI-W).
The suggested change aims to provide a more accurate reflection of the inflation suffered by older people, especially in areas such as healthcare, food and housing. Advocates point out that the CPI-W does not correctly reflect the rising costs suffered by the elderly, which leads to insufficient adjustments in Social Security benefits.
The CPI-E as a Determiner for Social Security Benefits Increase
Certified financial planner Matt Frankel, advocated for a change in the COLA calculation method, which is based on the Consumer Price Index for Older Adults (CPI-E), which measures price changes specifically in the spending patterns of Americans over the age of 62, which is the earliest age at which a person can start applying for Social Security retirement checks, says that this is because if it had been used in recent years, it would have meant more money in the pockets of retirees.
An SSA spokesperson said that, “The COLA is set by law and is based on the percentage increase of the consumer price index for urban wage earners and administrative workers from the third quarter of last year to the third quarter of the current year.” The change in the method of calculating Social Security benefits has already been raised before. Earlier this year, Democratic lawmakers proposed the Seniors Cost of Living Adjustment and Benefit Increase Act, which would use the CPI-E to measure benefit increases.