A recent report highlighted that Social Security and Medicare analyst Mary Johnson expects cost-of-living adjustments (COLAs) for Social Security benefits to shrink in 2025. She now expects benefits for seniors, survivors and people with disabilities to increase by 3%, down slightly from her May forecast of 3.2%.
Other experts echo Johnson’s downward projection for 2025. Alex Moore of the Senior Citizens League (TSCL) and Blacksmith Professional Services noted that their COLA projections have dropped from 2.66% to 2.57%, while financial blog CalculatedRisk predicts that the COLA in 2025 will be in the 2.5% to 3% range, which would be the smallest increase since the 1.3% increase in 2021. The Congressional Budget Office has an even lower projection of 2.5%.
The official COLA rates for 2025 will be released by the Social Security Administration in October. These projections suggest that Social Security recipients may see smaller benefit increases compared to previous years, which is essential for recipients to take into account in their financial planning.
Given these anticipated changes, individuals may need to consider different financial strategies, such as comparing the merits of certificates of deposit (CDs) versus high-yield savings accounts for short-term investments.
Experts expect correction to be small
COLA projections are subject to change, so it’s important to stay on top of these trends. For example, in May, 51 million retired worker beneficiaries received an average Social Security check of $1,916.63, which equates to $23,000 per year. While this may not seem like a lot, it’s a significant source of income for many retirees. According to Gallup polls, 80% to 90% of retirees rely on Social Security benefits as their “primary” or “secondary” source of income, highlighting the importance of Social Security in covering day-to-day expenses.
The annual COLA is one that Social Security recipients look forward to because it helps them maintain their purchasing power amid rising costs. As The Motley Fool explains, “If you take all the goods and services that seniors buy on a regular basis and the purchase prices of those goods and services go up, ideally your benefits should increase by a corresponding amount so that you don’t lose purchasing power.”
Historically, COLAs were determined arbitrarily by Congress until 1975, when automatic annual adjustments were introduced to provide retirees with a more predictable and stable income.