As the date for when your 2025 Social Security checks will go up gets near, hard times are coming. A lot of us probably will not be happy about the price hike.
But it is important to know why this is happening and how to handle it in the best way possible. If you would rather, you can call it the Social Security Administration (SSA).
It is in charge of all the different programs that try to keep Americans out of poverty as much as possible. Since all of this help comes in the form of monthly benefits, it is fair to think that they should be big enough to cover basic needs and still leave some money for other things that are needed.
It makes sense to think that the program’s goal is lost if this is not the case. As a result, changing the amounts given to all recipients is not only part of SSA’s job, but also a key part of the program’s plans to adapt to changes in the economy.
As part of this, inflation data will be used to create a way to track the trend and apply it to Social Security checks.
What is the process for determining the increase of your Social Security checks?
In a sense, you would have to pick an inflation measure. In this case, the SSA has made a measure called the COLA, which stands for “Cost of Living Adjustment.
The process for calculating it is to compare the different values that a price index has over time to determine the likely trend of inflation.
To keep your Social Security checks up to date, they use a consumer price index called the CPI-W, which stands for Consumer Price Index for Urban Wage Earners and Clerical Workers.
This measure collects changes in the prices of more than 200 goods and services based on what families who make at least half of their income from wages and salaries want.
After taking the average of the CPI-W for the third quarter of the year (July, August, and September), it is compared to the average from the previous year.
It is done the second week of October and gives us our COLA. By next January, all Social Security checks will fully reflect this change.
Why is the current forecast not good news for your Social Security checks?
It is important to know that the first problem you will run into when looking at the data for the increase in your Social Security checks and the expected COLA increase is that it is based on recent inflation figures, which means it does not show how the economy is doing right now.
All of the problems—whether they are political, natural, legislative, or related to population growth—must happen before the price data shows a clear change.
You can look for some hints, like in the news. But sometimes it takes months or even years for the real effect and size of an event on inflation numbers to become clear.
One example is how the COVID-19 outbreak changed things. The event had a big effect in 2020 and 2021, and inflation started to rise to 8% in 2020. But the cost of living adjustment (COLA) had an effect that lasted longer, and the biggest increase did not happen until 2022, two years later.
This is important because the most recent COLA estimates are for 2.6%, which is less than the 3.2% seen last year and the lowest in the last four years. It is important to keep in mind, though, that the September CPI-W is still the missing piece of the picture.
At that point, the number for this year will be close to 300, with 308.5 for July and 308.64 for August.
At first, this news might be disheartening, since it means that your Social Security checks will not be going up by as much as they could. The purchasing power of your money and other assets will not drop as much as predicted, though, because the COLA follows inflation.
This means that you will not have to cut back on purchases because of the effect of unrestrained price increases on your cost of living. There is a positive side to this.
