The latest estimate of Social Security's cost-of-living adjustment (COLA) for 2025 dipped to 2.6% after the government said inflation cooled a bit in July from June, new calculations showed Wednesday.
In July, the 2025 COLA forecast was 2.7%.
If COLA is 2.6% for 2025, that would be "considered the average amount that COLAs have been over the past two decades and the lowest since 2021," 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 2.9% in July from a year earlier, the government said on Thursday. That's down from 3.0% in June, the lowest level since March 2021, and matching the consensus forecast from Barron's. The so-called core rate, which strips out volatile food and energy prices, rose 3.2%, down from 3.3% in June and also in line with estimates. Both remain above the Federal Reserve's 2% target.
COLA is based on the "consumer price index for urban wage earners and clerical workers," or CPI-W. That figure rose 2.9%, unchanged from June and below the 3.2% COLA Social Security recipients began receiving in January.
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A dip in COLA would likely be bad news for seniors who have seen the items they spend the most money on continue to rise faster than their COLA, Johnson has said.
Rents have risen at a 5.1% clip over the past year, electricty 4.9%, hospital services 6.1% and transportation services 8.8%, for example.
Nearly two in three Americans said they worried more about running out of money than death, according to Allianz Life’s 2024 Annual Retirement Study, released in April. That’s up from 57% in 2022 and fueled mostly by inflation fears (43%), followed by Social Security not providing as much financial support as it should (24%) and high taxes (22%).
"Former President Donald Trump’s suggestion to eliminate the taxation of Social Securitybenefits is likely to be popular with many older voters, but it could have the unintendedconsequence of causing Social Security to go insolvent two years sooner than currentlyforecast," Johnson said.
The Social Security Board of Trustees expects Social Security will become insolvent in 2033. Insolvency would cause all Social Security benefits tobe reduced by 21% as benefits would be adjusted to the amount of revenues received by the program.
“Vague political promises not to touch Social Security benefits are meaningless,” Johnson said. “Voters need to be shown where the money is coming from to payour benefits."
As a policy analyst, Johnson recommends lifting the cap on payroll taxes for high earners and inflation-adjusting the income thresholds to tax Social Security benefits so fewer recipients are taxed. Those thresholds have never been adjusted for inflation, resulting in more recipients getting their Social Security taxed.
The Social Security Administration bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers (CPI-W) from July through September. That means July inflation numbers are especially important to pay attention to.
The index for urban wage earners largely reflects the broad index the Labor Department releases each month, although it sometimes differs slightly. Last month, the overall consumer price index rose 2.9% and the index for urban wage earners matched that headline inflation number.
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 per month.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
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