We’re still several months away from knowing what the final Social Security cost of living adjustment (COLA) will be for 2025, but the federal government's inflation data for March has pushed the COLA estimate higher, while dampening hope for future rate cuts.
According to the March Consumer Price Index (CPI) released April 10 by the Bureau of Labor Statistics, the March CPI-W (CPI for Urban Wage Earners and Clerical Workers) came in at 3.5%.
That's higher than the inflation trends indicated last month based on February’s CPI-W data. Based on this trend, The Senior Citizens League (TSCL) has adjusted its COLA forecast to 2.6% in 2025, up from 2.4% in February and 1.75% in January. Still, that’s a far cry from the 8.7% COLA increase seen in 2023.
TSCL notes that its estimates may change monthly, relying on the latest CPI data. The final COLA for 2025 may differ from these estimates because it's computed based on the average inflation rate during the third quarter (July, August, and September) determined by the percentage of change in the CPI-W and then compared to the same period a year prior. Six months' worth of data still needs to be collected, leaving plenty of room for change, the organization observes.
That said, TSCL has argued for several years now that the CPI-W is not an accurate measure of the expenses that retirees face. The organization contends that that market basket belongs to younger working adults under the age of 62 and doesn’t include the households of people who are retired. As such, the CPI-W gives greater weight to consumer items purchased more frequently by younger people like gasoline and electronics, while giving less importance to housing and medical expenses.
To that end, the organization's 2024 Senior Survey based on 1,157 responses shows that:
- 43% of seniors report household expenses increased by over $185 per month in 2023;
- 71% indicated their household costs rose more than 3.2% in 2023 (the year used to determine the COLA);
- 53% said they have spent their emergency savings; and
- 61% indicated that food is their most increased expense.
According to TSCL, these survey results expose a financial burden on seniors. “In The Senior Citizens League’s 2024 Senior Survey, a concerning trend emerges as 71% of respondents highlight an increase in household costs exceeding the 3.2% COLA they received this year,” stated TSCL Executive Director Shannon Benton, who oversees the Social Security COLA estimates for the organization. “If the COLA increases by 2.6%, that will be an approximately $45 increase. What can you buy for that? Not much,” Benton added.
The Social Security Administration typically announces the annual COLA adjustment in October of each year. It’s also worth reminding that the COLA serves as a precursor of what can be expected for retirement plan contribution and benefit limits for the coming year.
