Seniors should prepare for a modest increase in their Social Security payments next year, with the annual cost-of-living adjustment (COLA) expected to be around 2.6%. This is a decrease from the 2024 adjustment of 3.2%, which raised the average monthly benefit by over $50, and significantly lower than the 8.7% increase seen two years ago.
The primary reason for this smaller increase is the easing of inflation, which is generally viewed as a positive development. The COLA estimate is based on inflation data from the Bureau of Labor Statistics, which indicated that consumer prices rose by 2.9% in July compared to the previous year, slightly down from June’s 3% increase.
The COLA is determined by averaging inflation data for the third quarter of the year and then comparing it with the same data from the prior year, using the Consumer Price Index for all urban wage earners and clerical workers.
The Social Security Administration is slated to release the actual 2025 COLA number in mid-October, following the release of the September CPI data.
Experts suggest that seniors will face challenges despite the decline in overall inflation rates. While consumer prices may be stabilizing, the costs for essential goods and services, particularly for housing, electricity, and healthcare, continue to rise at a rate surpassing overall inflation.
For seniors, the rising prices of essential services pose a significant issue. Housing costs can take up to 50% of their budget, while the shelter index rose by 0.4% in July and increased by 5.1% year-over-year.
Concerns about the adequacy of Social Security benefits are growing. Recent surveys indicate that almost half of seniors feel they are managing for now but lack confidence about their financial future. A significant number report difficulties in affording essential needs. Social Security serves as a vital source of income for many senior citizens, with about half relying on it for at least half of their income.
With the anticipated 2.6% increase, many retirees are likely to struggle to maintain a reasonable standard of living, a concern highlighted by experts who note that current adjustments fall short of addressing the realities of rising living expenses.