In just a few weeks, the Bureau of Labor Statistics (BLS) will release the official Cost of Living Adjustment (COLA) for 2025, a critical update for those receiving retirement, survivor, disability, or Supplemental Security Income (SSI) benefits. On October 10, 2024, the official COLA increase for the following year will be confirmed, marking an important date for beneficiaries who rely on these adjustments to keep pace with inflation.
For context, the 2024 COLA saw a 3.2% increase, boosting the average Social Security benefit by $59 per month. However, many seniors found this insufficient, as rising costs, particularly in 2023, led to an average monthly spending increase of over $185 according to the Senior Citizens League (TSCL). This has heightened attention on the 2025 COLA, as many seniors hope for a more substantial increase to help manage their expenses.
How the COLA is Calculated
The COLA is determined using data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the monthly cost changes of a standard basket of goods and services, ranging from food to transportation. The Social Security Administration (SSA) calculates the COLA by comparing the average CPI-W for the third quarter (July, August, and September) of the current year to the same period of the previous year.
For example, the 2024 COLA was calculated as follows:
| Month | CPI-W 2022 | CPI-W 2023 |
|---|---|---|
| July | 292.219 | 299.899 |
| August | 291.629 | 301.551 |
| September | 291.854 | 302.257 |
| Q3 Total | 875.702 | 903.707 |
| Average | 291.901 | 301.236 |
Using these averages, the COLA was calculated with the following formula:
COLA=301.236−291.901291.901×100=3.2%\text{COLA} = \frac{301.236 – 291.901}{291.901} \times 100 = 3.2\%COLA=291.901301.236−291.901×100=3.2%
This method will also be used to compute the 2025 COLA, but the final calculation cannot be made until the September 2024 CPI-W is released on October 10, 2024.
What to Expect from the 2025 COLA
The COLA is closely tied to inflation, rising during periods of high inflation and falling when inflation moderates. In 2023, for instance, beneficiaries saw an 8.7% increase due to soaring inflation, while 2024 saw a smaller 3.2% increase as inflation began to cool.
Initially, it was anticipated that the 2025 COLA would be even smaller, with early estimates predicting a modest 1.4% increase. However, inflation has not subsided as much as expected, leading to revised projections. The Senior Citizens League initially estimated a 1.75% increase but later revised this to 2.63%. Similarly, the Congressional Budget Office (CBO) has estimated a 2.5% increase. If these predictions hold, beneficiaries could see an increase of about $48 to $50 per month in their Social Security checks.
Preparing for the 2025 Adjustment
As the final COLA figures will depend heavily on inflation trends over the next few months, beneficiaries should manage their expectations. While the COLA might increase slightly if inflation rises, it is unlikely to result in a significant boost to monthly benefits. Many seniors will need to continue relying on savings or other sources of retirement income to cover unexpected expenses.
FAQs:
When will the 2025 COLA be announced?
The 2025 COLA will be officially announced on October 10, 2024.
How is the COLA calculated?
The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the current and previous years.
What is the estimated increase for 2025?
Estimates for the 2025 COLA range from 2.5% to 2.63%, depending on inflation trends.