Millions of Social Security recipients are waiting for proof about the new cost of living adjustment (COLA) and more information about possible cuts to their checks as the end of the year draws near.
This is because the Social Security trust funds could run out by 2033. The Federal Reserve has said that these important payouts could be cut even more in the coming years.
This could mean that retirees get less money from Social Security. If inflation stays low, the time when Social Security income went up by huge amounts may be coming to an end.
FED made a warning regarding Social Security checks in 2026
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used by the Social Security Administration (SSA) to figure out the COLA.
The changes are meant to help Social Security payments keep up with inflation so that retirees can keep their buying power over time. Retirees’ Social Security checks have gone up 18.8% over the last three years.
This is because of high inflation caused by the unstable economy during the pandemic.
But the Federal Reserve’s ability to keep inflation in check could mean that big COLA hikes are over for now. As inflation goes down, Social Security recipients can expect smaller changes in their benefits in the coming years.
In September, the Federal Reserve lowered the federal funds rate by 50 basis points, bringing it down to a level of 4.75% to 5%. This was the first time in four years that the rate had been lowered.
The fact that the central bank did this shows that they are sure that inflation is now under control. The Federal Reserve is working hard to keep inflation from hurting the economy as a whole, but this could be bad news for seniors who depend on Social Security checks.
It might be harder for retirees to keep up with the rising cost of living if inflation slows down and makes it harder for the Social Security Administration (SSA) to raise payments.
This rate cut does not have a direct effect on the 2025 COLA, but it does show that the economic reasons that caused recent increases in Social Security checks have changed.
The increase in Social Security checks could be the lowest in recent years
Now, we can use figures from two months, July and August, of the CPI-W to get an idea of the 2025 COLA. CBS News says that the 2025 COLA will be about 2.6%, which is much smaller than the previous years if these numbers keep going up.
The August CPI-W numbers show that prices went up by 2.87 percent in July but only 2.35 percent in August. If inflation keeps going down through September, the overall COLA for 2025 might not be more than 2.6%.
The drop in the price of energy, especially oil, which is now selling below $70 per barrel, the lowest level in more than a year, is a big reason for this trend.
Since energy costs are a big part of total inflation, the drop in their prices suggests that year-over-year inflation will continue to fall. This makes it less likely that the cost of living will go up.
In addition, the Federal Reserve has said that it thinks inflation will keep going down, with a long-term goal of 2%. It thinks that inflation will reach a high point of 2.3% at the end of 2024 and then keep going down until it reaches 2.1% by the end of 2025.
This means that the COLA might only hit 2.2% in 2026, which is a little less than the 2.6% that was expected in 2025.
Beneficiaries might need to plan for their Social Security checks future
People who plan to retire will need to set aside money for these smaller cost of living adjustments (COLAs). The goal of the COLA increases is to help seniors keep up with inflation.
However, because the numbers are based on historical economic data and are retroactive, they may not fully take into account the current financial problems that retirees are facing, such as the rising costs of things like food and electricity.
In addition to making plans for small changes that might happen in the next few years, seniors should also think about ways to keep their costs down.
To get through the changing economic situation, it will be important to plan your finances well. If interest rates go down and inflation stays under control, it may give the economy some breathing room.
