Social Security Recipients May See Smallest Benefit Boost Since 2021 Due to Inflation

Every year, the Social Security Administration makes adjustments to its benefits to counteract inflation, offering an annual increase in the cost of living intended to offset the rising prices. However, 67 million recipients could experience the smallest boost since 2021. The projected 2025 cost-of-living adjustment (COLA) is anticipated to be approximately 2.63%, according to the Senior Citizens League, an advocacy group for older Americans. This figure is based on recent inflation data, with consumer prices seeing a 3% increase in June. This uptick is the smallest since June 2023 and lower than the predicted 3.1% by economists.

Financial Impact

If the 2.63% increase is implemented, it would lead to a monthly payment rise of around $50, based on the current average monthly benefit of $1,907. However, the official confirmation of this year's cost-of-living adjustment won't be announced until October. This is when the Social Security Administration typically determines the following year's benefit hike for recipients. The initial payment reflecting the new COLA is expected to be disbursed in January to the majority of recipients.

Despite the easing of U.S. inflation, seniors are not experiencing relief, as highlighted by the Senior Citizens League. There has been a growing rate of poverty among senior citizens in recent years. Additionally, nearly half of individuals over 65 years old have expressed challenges in paying their household bills, according to the most recent Census Household Pulse survey conducted from May 28 to June 24. The Social Security Administration mentioned that the rising cost of groceries has resulted in food insecurity for numerous retirees, with an estimated 5.5 million Americans aged 60 and above experiencing food insecurity in 2021, according to Feeding America.

Cola Calculation Method

The Social Security Administration determines its annual COLA based on the inflation during the third quarter, from July through September. The agency calculates the average inflation rate over that period using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the spending habits of working Americans.

Should the inflation rate surpass the rate from the corresponding period the previous year, the COLA is adjusted upwards by the difference. However, there has been criticism from some advocacy groups and lawmakers regarding the use of the CPI-W. This is due to the fact that older Americans have different spending patterns than younger workers. For example, the Senior Citizens League has pointed out that the CPI-W assumes that workers expend about 7% of their income on healthcare, whereas older Americans can spend up to 16% or more on health-related expenses.