Social Security retirees could experience something historic when it comes to their cost-of-living adjustment (COLA) next year. While the official word on the COLA won’t be out until October, all signs indicate that it is going to break a multi-decade record.
Here’s what could happen with the retirement benefits increase next year — along with some details on why it’s so unprecedented and whether it’s good or bad news for seniors.
Here’s how the 2025 COLA could break a 32-year record
The 2025 COLA is on track to break records for a simple reason. Expert projections suggest that retirees will receive at least a 2.7% increase and potentially a raise as high as 3.2%. This is based on estimates from The Senior Citizens League and from Mary Johnson, a retired expert at the Senior Citizens League who creates her own estimate.
If the raise is as big as projected, this will be the first time since 1993 that COLAs have been 2.7% or higher for at least four years running. The last time retirees had a streak of such big Social Security raises, here’s what it looked like:
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1990: 4.7% raise
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1991: 5.4% raise
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1992: 3.7% raise
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1993: 3.0% raise
Since that run of big benefit bumps, however, retirees have not seen four consecutive years of raises equal to or above 2.7%. That could change next year. Here’s what it will look like if it does:
These four years of raises add up to an even higher average benefit increase than during the 1990-1993 period. That’s happening because inflation has surged to unprecedented levels in the wake of the COVID-19 pandemic, and COLAs are based on how much costs increase year over year.
Unfortunately, this means that today’s retirees have seen some of the worst price increases in generations. While the big raises may be good news, record-high inflation is, of course, a problem for those on a fixed income.
Will seniors see a record-breaking benefits bump?
Of course, there’s no guarantee that experts will be right about the projected 2025 COLA. Still, there’s reason to believe their projections are going to be pretty accurate.
The COLA formula calculates benefits increases based on how much the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) shows that prices have gone up. Specifically, third-quarter data is used to measure how much more a basket of goods and services cost this year than it did a year prior.
While 2024’s third-quarter data isn’t yet available, the CPI-W data from the first six months of the year is. Experts have used these numbers to project trends in inflation that will dictate the benefits increase retirees get.
Until the CPI-W data for July, August, and September comes out, seniors will not know for sure whether they’ll end up with their record-breaking raise or not. If they do, it will mean they’re looking at another year when inflation ate away at their buying power in a big way. That could mean their savings buys them less, even as their Social Security benefits go up, which is something they need to account for when budgeting to ensure their funds don’t run short.
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Social Security’s COLA Could Break a 32-Year Record in 2025. Will It? was originally published by The Motley Fool
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