Social Security’s 2025 COLA: How Much Will Your Average Check Rise in New Year?

Social Security's 2025 COLA How Much Will Your Average Check Rise in New Year

For many retirees, Social Security represents much more than just a payment. This serves as an essential financial support that the majority of retired worker beneficiaries rely on for their livelihoods.

Considering the significant impact of the nation’s leading retirement initiative on the financial stability of the aging population, it is hardly unexpected that the upcoming announcement regarding the cost-of-living adjustment (COLA), scheduled for Oct. 10 at 8:30 a.m. ET, is highly anticipated.

Significance of the COLA in Social Security

The COLA, frequently discussed in relation to Social Security, is the method employed by the Social Security Administration (SSA) to modify benefits annually, reflecting fluctuations in the costs of goods and services.

When the overall cost of a wide range of goods and services that seniors frequently buy goes up by 2%, 3%, or 5%, it is essential for Social Security benefits to increase accordingly to maintain their purchasing power. The yearly adjustment for the cost of living is designed to ensure that those benefiting from the program can maintain their purchasing power in the face of increasing prices.

Starting with the initial distribution of retired-worker benefit checks in January 1940 and continuing until 1974, changes to benefits were entirely random and enacted through special congressional sessions. After a complete absence of adjustments throughout the 1940s, a series of 11 significant changes were implemented between 1950 and 1974.

The Adjustment for Social Security in 2025 has significantly Decreased

In the past two decades, the typical cost-of-living adjustment has been a rather unremarkable 2.6%. This timeframe encompasses three years marked by deflation (decreasing prices) with no cost-of-living adjustments implemented (2010, 2011, and 2016), alongside the record-low positive adjustment of 0.3% in 2017.

Nonetheless, the past three years have somewhat disrupted this sluggish trend in cost-of-living adjustments. The rapid increase in the current inflation rate over the past forty years resulted in a 5.9% adjustment in 2022, an 8.7% adjustment in 2023, and a 3.2% adjustment in 2024. The recent adjustment in the cost of living reached 8.7% in 2023, marking the highest percentage increase in over four decades.

Following the release of the July inflation report by the Bureau of Labor Statistics, and with the August report set to arrive on September 11, predictions for the 2025 cost-of-living adjustment have tightened considerably.

A nonpartisan advocacy group for seniors, The Senior Citizens League (TSCL), started the year with a prediction of a modest 2025 COLA at just 1.4%. In light of the July inflation report, this estimate has increased to 2.57%, which, by definition, would round up to 2.6%.

In the latest development, Mary Johnson, an independent analyst specializing in Social Security and Medicare, has seen her forecast for the 2025 COLA decrease from 3.2% to 2.6% after the most recent inflation report, following a previous adjustment made in April.

Initially differing greatly, TSCL and Johnson have now reached a consensus that the cost-of-living adjustment for 2025 will be set at 2.6%.

For the typical recipient of Social Security — approximately 68 million individuals — a 2.6% increase would result in an additional $46.35 per payment, calculated from the average disbursement of $1,782.74 in July 2024. The rise in benefits may differ among individuals and is also influenced by the type of beneficiary.

Retired workers, making up over 51 million of the nearly 68 million beneficiaries in the program, will see an average monthly increase of $49.90 due to a 2.6% cost-of-living adjustment.

In contrast, the typical payment for approximately 7.2 million individuals with disabilities and nearly 5.8 million beneficiaries would increase by $40.01 and $39.25, respectively, in the upcoming year.

The Upcoming COLA for 2025 could set a Precedent while also leaving some feeling Let Down

Initially, a 2.6% cost-of-living adjustment is expected to lead to a decline in purchasing power for recipients, a trend that has regrettably been prevalent since the start of this century.

The rising costs of essential expenses for seniors, particularly housing and healthcare, are significantly outpacing the 2.6% inflation mark, making a decline in purchasing power seem inevitable.

Another letdown arises as Medicare Part B premiums surge for the second year in a row. Part B encompasses the portion of Medicare dedicated to outpatient services.

In May, the Medicare Trustees Report forecasted that monthly part B premiums are expected to reach $185 in 2025, reflecting a 5.9% increase. This aligns with the increase observed in 2024.

The majority of individuals receiving Social Security and enrolled in Medicare see their Part B premiums automatically taken out of their monthly benefits. In essence, another year lacking positive developments from Medicare Part B will lessen the effect of the forthcoming COLA for Social Security.

Next year appears to be shaping up as a unique moment in history, yet a sense of disappointment hangs in the air.

Reference

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