Over the past few years, the prices of all necessities have gone up, which is a big problem for seniors.
If the Social Security Administration’s (SSA) annual cost of living adjustments (COLA) do not keep up with real rising costs, especially in healthcare, seniors will lose purchasing power.
This is a worry for a group that is very vulnerable to changes in the economy, especially since healthcare costs are rising so quickly.
In 2025, the expected COLA for Social Security payments will be 2.5%. However, many retirees are wondering if this will be enough, especially when compared to previous years.
It is helpful to look at past trends and think about how inflation might affect future changes in order to better understand this rise.
The COLA is closely linked to inflation rates, and the changes tend to reflect these changes when inflation rates change. As expected, this year’s COLA will be a lot smaller than previous years’. This is mostly because inflation is going down.
Historical COLA Increases
Inflation and the economy have changed a lot over the past five years, which can be seen in the big changes in COLA raises for Social Security.
These changes were very different from one year to the next, which shows that economic issues directly affect COLA rates.
For example, the COLA in 2024 was only 3.2%, which was a big drop from its previous high point in 2022, when it was at a very high level due to high inflation caused by the end of the pandemic and a big rise in the cost of living for seniors.
After the Great Recession, COLA changes were usually between 1% and 2% because the economy was not growing much and inflation stayed low.
Because of extremely high inflation during and after the pandemic, COLA increases have been slower in recent years. This is because the Federal Reserve took steps to stabilize inflation, which caused inflation to rise more quickly.
The COLA that will be announced on October 10th is likely to be around 2.5%. The Consumer Price Index (CPI) data for the third quarter will be used to make this change.
The Federal Reserve also uses the CPI data to make decisions about monetary policy that try to balance price stability and employment.
Projections for 2025
The Senior Citizens League, a nonpartisan advocacy group that works to help seniors, says that the COLA will be 2.5% in 2025. They made this prediction based on recent CPI figures.
This estimate might still change based on the data from July, August, and September, which are very important for figuring out the final change.
In spite of this, there should not be any big changes from this estimate, since market analysts usually make correct predictions after looking at a lot of data.
Since inflation is slowly going down, it is possible that future COLA adjustments will also go down. Some groups that help seniors have said that the SSA is wrong because the COLA does not fully reflect the rising costs seniors face because of this assumption.
A big chunk of older citizens’ costs are related to health care, which has seen higher inflation rates than other areas. Inflation rates in other areas are often lower than the rise in healthcare costs, though, so the total adjustment is not enough for many seniors.
Impact on Retirees
In 2025, retirees can expect a small increase in their Social Security benefits. However, there are still worries about whether the increase will be enough to effectively cover rising costs.
For many seniors whose main source of income is Social Security, making sure that COLAs are high enough to keep their buying power is very important for their financial health.
The problem still is that the way the change is currently calculated does not always take into account the real cost pressures seniors face, especially those related to health care.
The CPI, which is used to figure out COLA, is a general way to measure inflation that might not take into account the needs of seniors well enough. Because of this difference, some people want healthcare costs to be given more weight in the assessment.
Costs for healthcare tend to rise faster than many other parts of the CPI. Because of this mismatch, COLA does not always keep up with the inflationary pressures that seniors are feeling.
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