Social Security COLA increases as inflation pressure mounts
A look into Social Security’s adjustments to inflation, including the rise of the cost-of-living adjustment (COLA) to 3% for 2025 and the consumer price index (CPI) increases.
The latest estimate of Social Security’s cost-of-living adjustment for 2025 slipped to 3% after the government reported 3.3% inflation in May, new calculations showed Wednesday.
The 2025 COLA adjustment eased as inflation moderated after an uptick earlier this year. But it still likely underestimates what seniors need to keep up with inflation, said Mary Johnson, a retired analyst for the nonprofit Senior Citizens League who tracks and calculates the COLA estimates.
The consumer price index (CPI), a broad measure of goods and services costs, rose 3.3% in May from a year earlier, according to government data reported Wednesday. That’s down from 3.4% in April and below the 3.4% FactSet consensus forecast from economists. The so-called core rate, which strips out volatile food and energy prices, rose 3.4% on the year, but was down from 3.6% in April below predictions for 3.5%.
COLA is based on the “consumer price index for urban wage earners and clerical workers,” or CPI-W. That figure dipped to 3.3% from April’s 3.4% but still outpaced the 3.2% COLA Social Security recipients began receiving in January. CPI-W excludes the spending patterns of retired and disabled adults, most of whom receive Medicare benefits.
Interest rates: Inflation lingers, but is a Fed rate cut coming?
How is COLA calculated?
The Social Security Administration bases its COLA each year on average annual increases in CPI-W from July through September. The index for urban wage earners largely reflects the broad index the Labor Department releases each month, although it differs slightly.
How are seniors being shortchanged by COLA?
CPI-W, used to calculate COLA,”assumes that older adults spend about two-thirds of their income on housing, food, and medical costs,” Johnson said. “In reality, older consumers spend about three-quarters of their income on these costs, according to the Bureau of Labor Statistics expenditure weights. This disparity suggests that my COLA estimate, which is based on the CPI-W, may be undercounting real senior inflation by more than 10%.”
Items on which seniors spend the most money increased significantly over the past year: Hospital services rose 7.2%; transportation services soared 10.5%; shelter jumped 5.4% and electricity climbed 5.9%, the government said. Food rose 2.1%.
What was 2024’s COLA?
Older adults received a 3.2% bump in their Social Security checks at the beginning of the year to help recipients keep pace with inflation. That increased the average retiree benefit by $59 a month.
States want a cut: A full list of states that tax Social Security
Seniors fall more behind
COLA is meant to help Social Security recipients avoid a lower standard of living, but it hasn’t worked in reality. Poverty has increased among Americans 65 and older, to 14.1% in 2022 from 10.7% in 2021. That increase was the largest jump among any age group, according to the latest U.S. Census Bureau data.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
Source link
