Social Security Marks Essential Date for Retirees – Upcoming Increase Confirmed

One thing is certain about Social Security: it’s always evolving. One of the most welcomed changes for beneficiaries is the annual increase in monthly benefits through the Cost of Living Adjustment (COLA). COLA is crucial for retirees, as it helps maintain their purchasing power in the face of rising prices for goods and services. A quick trip to your local grocery store will confirm how rapidly costs are climbing. Fortunately, the COLA is designed to help seniors keep up with these expenses.

If you’re wondering about the next COLA increase, the Social Security Administration (SSA) will announce the official percentage on October 10. You can check the updated COLA on the Social Security website by navigating to the “Latest News” section. There, you’ll find a press release about the upcoming COLA and other important updates for beneficiaries.

COLA

The COLA is determined by the Bureau of Labor Statistics (BLS) using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks changes in prices for everyday goods and services that typical urban households purchase. To calculate the COLA, the BLS averages the CPI-W data from July, August, and September and then compares it to the same three-month average from the previous year.

Calculation

If the average CPI-W is 200 one year and 210 the next, that’s a 10-point increase. The difference of 10 is 5% of the original 200, resulting in a 5% COLA increase. This percentage is then applied to beneficiaries’ monthly Social Security checks, raising their payments for the following year.

However, Social Security never reduces benefits, even if the CPI-W drops. In years where inflation is flat or negative (as in 2010, 2011, and 2016), no COLA is applied, but benefits don’t go down.

Projections

Various organizations, such as the Senior Citizens League (TSCL), track inflation and make early COLA predictions. As of September, TSCL projects a 2.5% increase for 2025, slightly down from their earlier estimate of 2.57%. If this forecast holds true, it will be the lowest COLA since 2021, when it was just 1.3%. It will also fall short of the COLA’s 50-year average of 3.9%, reflecting recent trends in lower inflation.

CPI-W

Despite its long-standing use, the CPI-W has faced criticism for not accurately representing retirees’ spending habits. Since it tracks general urban households, it doesn’t account for higher healthcare expenses that seniors often face. As a result, COLA increases based on the CPI-W may not keep up with the actual cost of living for retirees.

Alternative Index

One alternative, advocated by groups like TSCL, is the Consumer Price Index for the Elderly (CPI-E), which specifically tracks spending patterns of Americans aged 62 and older. The CPI-E gives more weight to categories like healthcare and housing, which are typically a larger portion of retirees’ expenses. If Social Security switched to using the CPI-E, the COLA might better reflect the financial realities of seniors.

Benefits

According to recent studies, the purchasing power of Social Security benefits has dropped by around 20% since 2010. In simple terms, a dollar of benefits today is only worth $0.80 compared to its value a decade ago. This loss in value highlights the limitations of the current COLA calculation method. Until any changes are made, retirees will need to manage their budgets based on the CPI-W-based COLA, even if it doesn’t fully meet their needs.

Beneficiaries

While the SSA is unlikely to switch to the CPI-E or another alternative anytime soon, being aware of how COLA is calculated helps you better know your benefits. Knowing that COLA is based on inflation trends from the third quarter of the previous year can also help set realistic expectations.

Strategies

If you want to make the most of your Social Security benefits, consider delaying your claim until age 70, if possible. Doing so increases your Primary Insurance Amount (PIA), ensuring that each future COLA is applied to a larger benefit base. This strategy can significantly boost your monthly payments over the long term.

Final Thoughts

Keeping up with changes in Social Security can seem complicated, but knowing how COLA is determined and its impact on your benefits is essential. The SSA’s announcement on October 10 will reveal the exact percentage for the 2025 COLA, but until then, the projected increase of 2.5% can give you a good idea of what to expect.

FAQs