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Projected COLA for 2025: How It’s Calculated and Its Impact on Your Retirement

In order to calculate Social Security COLA, the Bureau of Labor Statistics uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) at a specific point in time.

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COLA Increase 2024 Medicare
COLA Increase 2024 Medicare

Projected COLA for 2025: According to April 2024 data from the Social Security Administration (SSA), nearly 68 million people receive Social Security benefits.

The majority of them rely on Social Security for their financial well-being. Others may not have any other source of income in retirement.

Every year, the Social Security Administration applies a cost-of-living adjustment to your benefits to keep up with inflation.

According to The Senior Citizens League (TSCL), the Social Security COLA projection for 2025 is 2.66%.

The estimate is trending downward from recent years, causing seniors to worry about their financial security.

COLA increases won’t be announced until October, so there is still time for things to change. Learn how Social Security COLA is calculated and how it affects seniors.

What is the formula for calculating Social Security COLAs?

Cost-of-living adjustments aim to level the playing field and boost benefits in line with inflation.

In order to calculate Social Security COLA, the Bureau of Labor Statistics uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) at a specific point in time.

In investment advisory firm Conrad Siegel, Brooke Petersen, CFP, ChFC, says the SSA COLA is based on the CPI-W. “The COLA is based on the percentage increase in the CPI-W from the third quarter of the previous year to the third quarter of the current year.”

Thanks to a COLA provision in the 1972 Social Security Amendments, this calculation has been automatic since 1975.

The CPI-W has not increased in three years since 1975, resulting in a 0.0% COLA: 2010, 2011 and 2016.

What is the COLA prediction for 2025?

According to the Senior Citizens League, the COLA for Social Security in 2025 is 2.66%.

TSCL has raised its 2025 COLA projection from 2.6% to 3.4% based on April’s CPI-W data. When March’s CPI-W came in at 3.5%, TSCL’s projection rose from 2.6% to 3.4%.

Remember, this is only an estimate of possible COLA increases for 2025. The official COLA increases will be based on third-quarter data from July to September. “Nearly everyone was wrong about the path of inflation this year,” Petersen says.

The COLA over the past decade: 2025-2024

In the past 10 years, COLA has varied widely. The lowest COLA was 0.0% in 2016, and the highest was 8.7% in 2023.

There was a lower 3.2% COLA increase for Social Security in 2024.

Social Security’s projected COLA for 2025 is 2.66%, resulting in another decrease. It’s possible that the percentage will change, but the concern is that the COLA isn’t enough.

According to a May 15 TSCL release, the average Social Security benefit increased by $50.00 in 2024, and after subtracting $9.80 for Medicare Part B premium increases, the total change in benefit amounts to just $40.20.

“With a COLA forecast for 2025 of 2.66%, seniors are likely to continue to experience financial insecurity next year.”

According to the National Institute on Retirement Security, 87% of respondents are concerned about rising healthcare costs in retirement.

Your retirement and the 2025 COLA increase

Those receiving Social Security benefits may be able to get a better idea of what kind of increase they can expect from the projected 2025 COLA.

“The COLA applied to beneficiaries’ checks starting in January of 2025 will be calculated and announced in October of 2024,” says Martha Shedden, president and co-founder at the National Association of Registered Social Security Analysts.

Increases in Social Security benefits can help combat inflation and keep your purchasing power, but other costs offset the benefit.

According to Shedden, Medicare Part B premiums have the greatest impact on retirees’ Social Security income because they are deducted from their checks.

Mainly, the COLA increase doesn’t take into account all of the additional costs everyone’s facing, especially seniors on fixed incomes paying for Medicare.

“We’ve all experienced higher costs of goods and services,” says Petersen. He explains that Medicare Part B and Medicare Part D have significantly exceeded the Social Security COLA, eroding purchasing power.

Many retirees were disappointed with the Social Security 2024 COLA increase.

We’ll have to wait until October to see how the Social Security COLA for 2025 compares with the 2024 COLA.

Also Read: COLA Increase 2025 Calculator: How Is the Next COLA Increase Determined?

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