HIGHER INCREASE PROJECTED FOR COLA 2025! #va #disability #compensation #benefits #socialsecurity
2025 Social Security COLA Estimate Jumps to 3%
Stubborn, higher than expected inflation numbers lead to fourth consecutive increase in the monthly estimate, up sharply from 1.4% in January
Inflation trends so far this year have led The Senior Citizen’s League to raise its 2025 Social Security COLA outlook from 2.4% to 3.0%, based on the jump in Consumer Price Index released this morning by the Bureau of Labor Statistics.
“It is still early and this estimate is very likely to change,” noted Mary Johnson, retired Social Security and Medicare Policy Analyst for TSCL.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the same index used to calculate the COLA, rose to 3.5%, exceeding the 3.2% COLA that Social Security recipients started to get in 2024. “That means older consumers are losing buying power,” Johnson said.
She added that gasoline and shelter costs were two categories taking the biggest jumps in March, but consumers are still dealing with high inflation for motor vehicle insurance, up 22.2%, hospital services 10.7%, and housing costs up 5.7%. The cost of electricity is up by 5% versus 3.1% for gasoline, as consumers move to a greater reliance on electricity for vehicles.
TSCL updates its next-year cost of living adjustment forecast each month, based on the latest monthly inflation data contained in the CPI. While TSCL’s Mary Johnson readily admits it’s still way too early to predict what the actual 2025 COLA will end up being, by the fall the estimates tend to be very close to what the official adjustment ends up being. So far this year, TSCL’s estimates have gone from 1.4% in January to 1.75% in February and 2.4% in March before being adjusted to 3.0% for April.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is used to calculate the Social Security COLA, rose 3.5% over the last 12 months, and the index increased 0.7% for the month of March prior to seasonal adjustment. It also rose 0.7% in February.
The main all-items index, Consumer Price Index for All Urban Consumers (CPI-U), increased 0.4% in March on a seasonally adjusted basis, the same increase as in February. The New York Times reported today that the “surprisingly stubborn inflation reading could raise doubts about when the Federal Reserve will be able to start cutting interest rates and how much it will be able to reduce borrowing costs this year.”
Over the last 12 months, the all-items index increased 3.5% before seasonal adjustment, same as the CPI-W. That’s still higher than the roughly 2% that was normal before the pandemic.
The official 2025 COLA will be calculated based on the average rate of inflation using the CPI-W during the 3rd quarter (July, August and September) of this year, which is compared against the 3rd quarter from the prior year.
This year’s 3.2% COLA raise was well below the last two annual increases of 8.7% and 5.9%, respectively. But the 2024 adjustment still ranks well above a 20-year average that sits slightly above 2.6%. The Social Security Administration says the estimated average monthly Social Security retirement benefit for January 2024 was $1,907. If the 2025 COLA were to end up at the currently forecasted 3%, it would mean a monthly increase of $57.21 for the average benefit, raising it to about $1,964.
The Congressional Budget Office recently released an estimate of the 2025 COLA in its annual Budget and Economic Outlook for 2024 to 2034. The CBO has the 2025 COLA pegged at 2.5%, using a different methodology than TSCL’s. But both estimates reveal inflation rates are expected to fall from 2023 levels, and the COLA for 2025 is expected to be lower than this year’s 3.2% raise.
