Inflation afflicts us all, poor and rich, but also (and especially) middle-class families and Social Security retirees. For this blow that we see coming slowly and inevitably every year, the Social Security Administration (SSA) carries out the cost of living adjustment (COLA) every year, an increase that tries to cope with inflation, so that beneficiaries do not lose purchasing power.
And although the government of Joe Biden has kept inflation cooled, experts warn that the arrival of Donald Trump could skyrocket the cost of living with his proposals (we’ll discuss it later in this article).
This Is How the SSA Calculates your Upcoming COLA Increase
The COLA is based on the Consumer Price Index for Urban and Clerical Workers (CPI-W). This index measures the applied changes in the prices of a basket of representative goods and services for salaried and clerical workers, by inflation each month.
To have a clearer picture, the SSA takes note of the CPI-W of the third quarter of the year, that is, the months of July, August and September. Then, he compares it with the same time span of the previous year, and the average between these is compared.
If the CPI-W has increased from the third quarter of the previous year to the third quarter of the current year, the COLA is applied to Social Security benefits starting in January of the following year. If there is no increase in the CPI-W, no adjustment is made.
Let’s See an Example
So, imagine a hypothetical case where the COLA increase is 2%. If a beneficiary receives $1,000, when the adjustment is applied, they will receive $1,020. If the next year the COLA is again 2%, the same beneficiary will receive monthly payments of $1,040.40, and so on year after year.
The 2025 COLA Increase Will Be the Lowest in Several Years
Although a low COLA is a response to cooling inflation (hey, that’s good news for any American), it means in turn that Social Security recipients are going to see a smaller increase than they would like.
The Senior Citizen’s League (TSCL), a nonpartisan senior advocacy group, released its latest estimate on Thursday. According to the Labor Bureau’s most recent Consumer Price Index for Urban Wage Earners (CPI-W) figures, next year’s cost of living adjustment (COLA) is projected to be just 2.63%.
Anyway, as we explained before, this number is not final and will be announced only in October, when the final COLA that will be applied from January 1, 2025 will be officially announced.
Experts Project Higher Inflation if Trump Returns to the White House
A growing number of investors and economists are warning about the possible increase in inflation if former President Trump and the Republicans win the next elections, due to Trump’s tax and tariff policy proposals, which include a 10% general tariff on imports and the extension of tax cuts.
Experts point out that this could lead to higher prices and increase costs for businesses and consumers. Although inflation is affected by multiple factors and policies do not always translate directly into price increases, the possibility of higher tariffs and tax cuts could generate inflationary pressures.
Although the Trump campaign maintains that his policies will reduce inflation, analysts such as Daniel Alpert warn about the consequences for consumers already impacted by a cost of living crisis.
Concerns are also raised about the effectiveness of the tariffs, their impact on the economy and employment, as well as the long-term fiscal implications, including possible deficits and the need to reduce them according to organizations such as the IMF. The markets are not yet fully reflecting these concerns, leading to uncertainty about the potential impact on the economy.