Bad News for Retirees – Worst Possible Increase in Social Security Benefits Expected

Social Security benefits are critical for millions of beneficiaries in the United States. As a result, any change that threatens this income will grab the interest of retirees and other recipients. For instance, one of the most important topics is related to the cost of living adjustment (COLA), which determines the increased percentage that all beneficiaries will get every year in their monthly benefits. Unfortunately, according to the latest predictions, Social Security recipients may receive the smallest COLA boost since 2021.

How does the SSA estimate whether Social Security benefits will increase in response to the COLA?

The Social Security Administration uses third-quarter inflation data, which runs from July through September, to determine the annual COLA. Using data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, which tracks the spending of American workers, the government calculates the average inflation rate for that period and increases the COLA by the difference if that inflation rate is higher than it was during the same period last year. 

However, considering that elderly Americans spend differently than younger workers, some advocacy groups and lawmakers have opposed the use of the CPI-W. For example, according to the Senior Citizens League, the CPI-W estimates that employees spend 7% of their income on health care, whereas older Americans may end up paying 16% or more for medical expenses. 

Social Security benefits are expected to increase below the 3% increase

To address rising costs, the Social Security Administration provides an annual cost-of-living increase in addition to annual benefit adjustments to account for inflation. The program’s 67 million participants may see the smallest increase this year since 2021. According to projections made by the Senior Citizens League, an advocacy group for senior citizens, the COLA for 2025 is expected to be approximately 2.63%. 

Moreover, based on recent inflation data, that amount was calculated. In June, consumer prices increased by 3%, which was less than the 3.1% increase that economists had predicted and the smallest increase since June 2023. If implemented, a 2.63% rise would result in a monthly payment increase of around $50, based on the current average monthly benefit of $1,907. Nonetheless, bear in mind that the official announcement of this year’s cost of living adjustment (COLA)) is due in October, following the Social Security Administration’s typical benefit rise schedule. Thus, the first payment under the new COLA will come on most recipients’ January Social Security benefits.

The smallest increase in Social Security benefits since COLA 2021

As the Senior Citizens League claimed, even if US inflation is declining, many seniors are not feeling any better. Senior citizen poverty has increased recently, with over half of respondents over 65 saying they were struggling to pay their household expenditures, according to the most current Census Household Pulse, which polled respondents from May 28 to June 24. For this reason, seniors are expected to receive a 2.63% rise in their Social Security benefits this year due to lower inflation, or roughly $50 per check. However, many people are already struggling to pay their bills following years of excessive inflation.

In a statement, the Senior Citizens League stated that food insecurity is becoming more prevalent among seniors as store costs rise. The most recent study on the subject, published by Feeding America, found that 5.5 million Americans aged 60 and above suffered food insecurity in 2021; the actual figure is likely higher now. It is important to highlight that the 2.6% COLA rise for 2025 is simply an estimate, as the exact percentage will not be released until the end of the year in October. As a result, beneficiaries should only regard this percentage as a possible outcome, not a guaranteed rise in their Social Security benefits.