The cost of living adjustment (COLA) for Social Security beneficiaries in 2025 could be lower than that seen in 2024. This adjustment, which is calculated annually based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), reflects the variation in prices and seeks to protect the purchasing power of Social Security beneficiaries.
The Bureau of Labor Statistics (BLS) reported a 0.2% increase in the Consumer Price Index (CPI) in July, following a slight decline in average prices over the previous month. Despite this increase, the projected COLA for 2025 will likely be lower than the 3.2% increase granted in 2024. This lower forecast is due to the slowdown in the rate of price increases over the past year.
The CPI-W is the key indicator that the Social Security Administration (SSA) uses to calculate the COLA. This index compares the average prices during the third quarter (July, August and September) with the average of the same quarter of the previous year.
Although June showed a drop in prices for the first time since May 2020, this decline was offset by the 0.2% increase in July. The CPI-W average for the third quarter of 2023 was 301,235, reflecting an increase of 2.4% compared to the average prices recorded in July 2024.
Impact of COLA on Social Security Beneficiaries
Information provided by the BLS suggests that the COLA that will be applied to Social Security benefits next year will be lower than this year. However, a decrease in the CPI could ease the financial burden on households, especially those where beneficiaries rely on fixed incomes.
This relief could be significant for seniors, who often face greater difficulty compensating for the loss of purchasing power due to inflation.
Michelle Delker, a certified public accountant and founder of The William Stanley CFO Group, explained in an email that “maximum benefits can be achieved by delaying the start of benefits until age 70, as benefits increase by approximately 8%. for each year delayed beyond full retirement age. It is also essential to have maximum taxable income for at least 35 years.”
COLA projections for 2025
Before the release of the BLS report in July, the Senior Citizens League, a senior rights organization, had estimated a COLA of 2.63% by 2025. However, after the price increase recorded in July , this projection was adjusted downward to 2.57%. The official COLA announcement for 2025 will be made in October, once consumer price data for September has been collected.
Social Security Benefits in 2024
The COLA increased 3.2% for the year 2024, which was translated into an increase in Social Security benefits, not that big, but it actually follows the last year’s inflation.
To maximize these benefits, it is essential to understand how they are calculated. Benefits are determined by several factors, including average earnings over 35 years of work, cost-of-living adjustments, and the age at which benefits begin.
The estimated average Social Security benefit for retired workers in 2024 is $1,907 per month. However, those who manage to delay their retirement until age 70 and who have had maximum income for at least 35 years could receive a higher amount.
In 2024, the maximum Social Security benefit ranges from $2,710 to $4,873 per month, depending on the age at which beneficiaries retire.
Claiming Social Security benefits before age 70 will result in a reduction in the monthly amount, with a 30% decrease if you begin receiving benefits at age 62. Therefore, for those who can afford to wait, delaying retirement can be a beneficial financial strategy.
