close
close

Mixed message for seniors arrives as forecasts for 2025 Social Security COLA are updated

In 2022, consumers have witnessed an unprecedented rise in inflation that has confronted them with skyrocketing prices. The Federal Reserve has taken action by raising the federal funds rate (FFR) to slow the movement of money through the economy and curb rising prices. Despite the measures taken, prices continued to rise, seriously impacting the purchasing power of beneficiaries. In response, the Social Security Administration (SSA) proposed a cost of living adjustment (COLA) of 8.7% in 2023, followed by another adjustment worth 3.2% in 2024.. These annual adjustments aim to protect the purchasing power of beneficiaries against inflation. Inflation can be a challenge, but the government is committed to protecting the public from its negative effects. Although the pace of price increases is slowing in some cases, the prices of goods continue to rise. In March, the Consumer Price Index (CPI) increased by 0.4 percent, following the 0.4 percent increase in February, marking the largest monthly increase since September 2020.

While the news may be discouraging for people on fixed incomes who rely on SSA benefits, there is still hope.

The SSA calculates the COLA using the Bureau of Labor Statistics (BLS) CPI for Urban Wage Earners and Clerical Workers (CPI-W)). To determine the COLA, the SSA compares the CPI-W for the third quarter of the year (July, August, and September) before the CPI-W for the third quarter of the current year. This will be announced in mid-October. Throughout March, the BLS reported an increase of 0.7 percent before seasonal adjustment (or 0.4 percent after seasonal adjustment). Already this year, prices have increased by 1.1 percent. According to the Bureau of Labor Statistics, to exceed the 3.2% COLA applied to benefits in 2024, prices would need to increase 1.8% by September. The COLA will be announced in mid-October.

Next week, the BLS will release the April CPI report which will provide more information to further update the 2025 COLA forecast.

The purchasing power of seniors under threat

It is important to remember that forecasts for the Cost of Living Adjustment (COLA) 2025 may change over the next few months until the official announcement. While beneficiaries would certainly appreciate a significant COLA increase, it should be noted that it will not be applied to benefits until January of the following year. In some cases, deflation may offer greater relief. There are generally only minor price fluctuations after applying the COLA to benefits each year. However, in a high inflation environment, a one-off increase in benefits can put beneficiaries in a difficult situation.. Inflation can reduce their purchasing power, making it harder for them to buy the things they need, like groceries and medicine.

This reduction in purchasing power can harm the health of older adults, who may skip meals or ration medications due to financial constraints.