As the year comes to a close, predictions about the future of Social Security benefits become more accurate, and the most recent ones indicate that beneficiaries may see a modest increase in their payments in 2025, with The Senior Citizens League (TSCL) projecting a cost-of-living adjustment (COLA) of around 2.5%.
This would represent the smallest increase since 2021. According to the forecast, a 2.5% increase would add approximately $48 to the average monthly Social Security benefit, which is currently $1,907.
This would be a departure from the more significant increases seen in recent years, which were primarily driven by high inflation, such as an 8.7% adjustment in 2023 and a 5.9% increase in 2022.
The Social Security Administration (SSA) will release the official COLA for 2025 in mid-October, but TSCL’s forecast is based on recent inflation trends, implying a return to more typical levels of benefit adjustments. The inflation spike that resulted in larger increases in recent years is slowing, which could lead to a lower COLA next year.
The impact of a lower COLA on Social Security beneficiaries
TSCL recently conducted its 2024 Retirement Survey, which received responses from over 2,100 participants. The findings revealed that a large number of seniors are experiencing financial difficulties.
Notably, 65% of respondents reported monthly expenses of at least $2,000, up from 55% in 2023. Furthermore, nearly 80% of senior households reported higher costs for basic necessities such as food, housing, and prescription medications in the previous year.
Shannon Benton, TSCL’s executive director, emphasized the need for a stronger COLA in light of these rising costs. She went on: “Ensuring that seniors have enough to feed and house themselves with dignity is a major reason why we advocate for a minimum COLA of 3%.”
Benton stated that TSCL research shows that approximately two-thirds of seniors rely on Social Security for more than half of their monthly income, with 28% relying completely on it. These statistics highlight the critical role that Social Security plays in ensuring financial security for older Americans, many of whom have few other sources of income.
The most recent consumer price data, released on September 11, informs TSCL’s latest COLA estimate, indicating that inflation is slowing. In August, inflation fell to an annual rate of 2.5%, down from 2.9% the previous month.
While this decline suggests that inflationary pressures are easing, core inflation, which excludes volatile categories such as food and energy, remained stable at 3.2% on an annual basis. The core consumer price index (CPI) rose 0.3% month on month, up from 0.2% in July.
This increase in core CPI indicates that some inflationary pressures, particularly those affecting essential goods and services, may persist despite the overall slowing of inflation.
Greg McBride, chief financial analyst at Bankrate, emphasized the ongoing challenges that inflation presents for American households. He commented on the rise in core CPI, saying it was disappointing to see the trend continue upward.
“Households know all too well the difference between ‘moderating inflation’ and ‘high prices,'” replied McBride. “A lower rate of inflation simply means that prices aren’t rising as quickly as they were, not that prices are falling in any significant way.
Even a more normal rate of inflation does not erase the rapid rise in prices that has stretched household budgets, which millions of Americans are still feeling.”
Despite the slowing of overall inflation, food inflation remained a source of concern in August. While the rate of food price increases did not change significantly, some items in this category experienced significant month-over-month price increases.
For example, the price of eggs increased by 4.8%, while chicken prices rose by 0.7%. Other food items that have seen price increases include beef and veal (0.3%), fresh fruits (0.7%), and milk (0.6%). These price increases highlight the ongoing challenges that many households face in affording basic necessities, even as inflation appears to be slowing.
