It sounds like good news. The Senior Citizens League (TSCL), a nonprofit and nonpartisan advocacy group, has increased its long-term Social Security COLA forecast for 2025 to 2.6%. But that modest increase — up from 1.7% in a February 2024 forecast — may fall far off the mark for seniors trying to beat back inflation.
The new estimate is based on the March 2024 CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers), which was 3.5%, according to the Bureau of Labor Statistics. Last year, the Social Security cost-of-living adjustment (COLA) was 8.7%; this year, it’s 3.2%. As retirees struggle to keep up with inflation, this 2.6% forecast is seen as a setback.
TSCL's 2024 Senior Survey (with over 1,100 responses) affirmed the struggle to make ends meet. The survey found that 71% of individuals said their household costs rose more than 3.2% in 2023 (the year used to determine the COLA). And 53% said they had spent their emergency savings, while 43% reported household expenses increased by over $185 per month in 2023.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
“If the COLA increases by 2.6%, that will be an approximately $45 increase. What can you buy for that? Not much,” said Shannon Benton, a director who oversees estimates of the Social Security Cost-of-Living Adjustment for The Senior Citizens League, in a statement.
The COLA is determined by calculating the percent change between average prices in the current year's third quarter with the previous year's third quarter. Because the full-year CPI-W increased 3.8% last year, but the third-quarter CPI-W increased just 3.2%, Social Security benefits fell behind inflation and lost buying power. This will continue to be the case as long as CPI-W inflation is greater than 3.2%.
Many experts, like the National Committee to Preserve Social Security & Medicare, believe that the CPI-W — which reflects everyday spending workers face, including expenses for food, housing, and consumer goods — does not accurately reflect the impact of inflation on retirees. They argue that Social Security COLAs should be based on the Consumer Price Index for Americans aged 62 or older (CPI-E), as this price index reflects the costs incurred by older adults more accurately. On the other hand, some economists have argued that the CPI-E is not necessarily the best measurement for older Americans and may not always result in a higher COLA.
If, however, this proposed change in Social Security is a more accurate measure of the expenses faced by seniors, then a 2025 COLA forecast of only 2.6% is even worse news. Every month this year, the CPI-E has increased faster than the CPI-W. During the first quarter of 2024, the CPI-E increased 3.6%, but the CPI-W increased just 3.2%. And last year, the full-year CPI-E increased 4.6%. According to the Motley Fool, “CPI-E inflation is once again running hotter, so Social Security benefits may lose more purchasing power next year than the CPI-W inflation numbers suggest.”
Related Content
-
Stock Market Today: Stocks Rally Despite Rising Geopolitical TensionThe main indexes were mixed on Tuesday but closed well off their lows after an early flight to safety.
-
What's at Stake for Alphabet as DOJ Eyes Google's ChromeAlphabet is higher Tuesday even as antitrust officials at the DOJ support forcing Google to sell its popular web browser. Here's what you need to know.
