The new estimation is out for Social Security Cost-of-living adjustment (COLA) as the government released the inflation data. According to reports, inflation is decreasing, so citizens can expect lower COLA in the coming year.
2025 Social Security COLA Increase
Many US citizens get financial support from various social security benefits like retirement, disability benefits, and many more. Social security assistance helps many citizens manage their living expenses, hence its hike or down is crucial for US people. According to reports, more than 71 million receive Social Security and SSI.
Every year, the SSA updates the cost-of-living adjustments (COLA) to ensure the assistance aligns with the cost of living in the US in that year. The adjustment helps the Social Security beneficiaries to manage their living expenses according to the inflation rate. This year, the government increased the Social Security COLA by 3.2% to match up with the rising inflation.
Now, the citizens are speculating about the 2025 COLA Social security adjustments. According to the recent government reports on inflation, the government estimates that inflation will come down in the coming year to 2.1%, and social security recipients can expect a decrease in the Social Security COLA rates.
According to industry experts, the Social Security beneficiaries can expect the 2025 COLA to be 2.5% based on the newly released inflation reports which is lower than the 3.2% hike of 2024 and far from 2022 and 2023 COLA.
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How does COLA affect the Social Security benefits?
The purpose of the COLA is to safeguard the purchasing power of Social Security recipients from inflation so that they can afford the basic items needed for living well.
The cost of living adjustment (COLA) is computed on the basis of the percentage increase in the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) that happened from the third quarter of the previous year to the current year.
In simpler words, the authority determines the cost of goods and services for US citizens through CPI-W. The Bureau of Labor Statistics determines the CPI-W for the year, which the SSA uses to calculate the COLA for the year.
The Social Security benefits increase with the CPI-W increases and decreases with the CPI-W. The 2023 COLA was 8.7%, which was the highest COLA in all these years. The 8.7% rise in COLA has increased the annual Social Security benefit to $10,870 for the recipients who received the $10,000 worth of benefits in 2022.
How does the SSA calculate the COLA every year?
As we have mentioned earlier, the BLS (Bureau of Labor Statistics) calculates the CPI-W every month to evaluate the costs of goods & services for the citizens. In 1975, Congress made the COLA provision to calculate COLA automatically based on CPI-W and in 1983 the government used the CPI-W of the third quarter year to compute COLA.
The SSA calculates COLA annually based on a formula, where the SSA compares the average CPI-W for the third quarter of the current year to the average CPI-W in the third quarter of the previous year. Here’s the COLA formula used by SSA to determine the COLA every year:
COLA %: Average CPI-W third quarter the current year – Average CPI-W of the previous year third quarterAverage CPI-W of the previous year third quarter x 100
For the 2025 COLA calculation, the SSA will compare the average CPI-W of the 2024 third quarter (July, August, and September) and the average CPI-W of the 2023 quarter. If the average increases, it will be rounded off to the nearest tenth of a percent, and if the CPI-W is more than 0.1% the SSA will approve the COLA rates.
However, the SSA found no increase in the CPI-W and it rounded to zero, there will be no COLA for that year.
When can you expect the 2025 Social Security COLA announcement?
Social security will generally announce the COLA for the next year in October. So, US citizens can expect the announcement of 2025 COLA updates in October 2024. According to the SSA, if there is any COLA percent increase of more than 0.1%, it will be effective from December 2024.
The Social security benefits payments will be processed based on the COLA rate. If the 2025 COLA prediction becomes true, people can feel the increase in payment based on the COLA rates depending upon the COLA rates which will be lower than the 2024 payments.
The CPI-W estimates change every month, so the recipients can expect some change in the upcoming COLA as we are three months away from the announcement. The CPI-W of the 2024 third quarter will play a crucial role in determining the Social security COLA increase for the next year.
How much will your Social benefit increase in 2025?
According to the current estimation, Social Security recipients can expect 2.5% to 2.7% COLA for 2025. Based on the prediction the retirees can expect the following change in their social security payments:
- Currently, the Social Security recipient’s monthly benefit is up to $1907, and based on the estimate, the recipients can expect a hike of $50 in their monthly payments.
- The purchasing power of the elderly, retirees, survivors, and disabled people would increase as the government estimates the decrease in inflation.
With the increase the recipients can expect some financial relief, but experts believe the Americans should not entirely depend on the Social security benefits and allowances for their living costs.