What's Happening
14 minutes ago

Asia Ex-India And Europe Markets Advance, Gold Retreats From All Time High - Global Markets Today While US Slept

benzingabenzinga.com
15 minutes ago

Want $10,000? Invest $2,500 Into XRP (Ripple) and Wait 4 Years.

foolfool.com
17 minutes ago

Lyft CEO Sees Autonomous Vehicles Including Alphabet's Waymo As Game-Changer For Ride-Hailing, Not A Threat: 'The More AVs… The Better Lyft Does'

benzingabenzinga.com
20 minutes ago

Buying This Artificial Intelligence (AI) Chip Stock Is a No-Brainer After This Development

foolfool.com
20 minutes ago

Looking for Dividend Stocks to Buy in February? Consider These 3 Dow Jones Components.

foolfool.com
35 minutes ago

1 Must-See Quote for AI Stock Investors From Arm Holdings' CEO

foolfool.com
42 minutes ago

Could Dogecoin Make You a Millionaire in 2025?

foolfool.com
43 minutes ago

This Stock Could More Than Double By 2029, According to Billionaire Bill Ackman

foolfool.com
45 minutes ago

Intel Just Pulled Ahead in This Key Market

foolfool.com
50 minutes ago

Did China's DeepSeek Just Crash and Burn President Trump's $500 Billion AI Stargate Project?

foolfool.com
51 minutes ago

US Stocks Set For A Cautious Start Ahead Of Inflation Data: Expert Says 'Strong Bull Markets Tend To Roar Back To Life After Corrections'

benzingabenzinga.com
55 minutes ago

Got $3,000? 3 Artificial Intelligence (AI) Stocks to Buy and Hold for the Long Term

foolfool.com
1 hour ago

2 Stocks Down 47% and 82% to Buy Right Now

foolfool.com
1 hour ago

What's a Fair Price to Buy Johnson & Johnson Stock?

foolfool.com
1 hour ago

Is Berkshire Hathaway Stock a Buy Now?

foolfool.com
1 hour ago

Is Archer Aviation Stock Worth the Hype?

foolfool.com
1 hour ago

'Racism Has No Place in Missouri': State Attorney General Sues Starbucks Over Hiring Policies

benzingabenzinga.com
1 hour ago

Geopolitics And Resource Nationalism Are Choking The Commodity Supply

benzingabenzinga.com
1 hour ago

Should You Buy Affirm While It's Below $85?

foolfool.com
1 hour ago

Should You Buy Bank of America While It's Below $50?

foolfool.com

Social Security’s 2025 Cost of Living Adjustment (COLA) Is Likely to Disappoint: Here’s What All Retirees Need to Know Before Oct. 10

Almost 70 million Americans will receive a total of $1.5 trillion in benefits from Social Security this year. The program’s checks are a key source of income for a majority of U.S. retirees. For some, they’re a financial lifeline: One in seven recipients relies solely on them for income.

As such an important part of millions of Americans’ financial lives, the benefits must keep pace with inflation. As the cost of living goes up, benefits have to rise too, or retirees would have to continually make do with less until those payments became essentially worthless. Would you consider retiring on $22.54 per month? That’s how much the program’s first check — check number 00-000-001 — was made out for when it was cut in 1940.

Thankfully, the law that underpins Social Security now accounts for inflation: Each year, the program tracks inflation during the third quarter, and based on the reading, determines a cost of living adjustment (COLA) for the next year. The 2025 COLA will be announced on Oct. 10 before going into effect in January.

COLAs weren’t always a guarantee

Before 1975, in order for benefits to be raised, legislation had to be passed. As you might imagine, this led to issues. There were large stretches of years when Congress didn’t raise benefits. By the early 1970s, however, in the midst of terribly high inflation — even higher inflation than what the country saw in 2022 and 2023 — Congress acted to make the process for annual increases automatic, creating the modern COLA.

Now, every autumn, the Social Security Administration (SSA) calculates a new COLA based on the inflation numbers from July, August, and September. The SSA looks specifically at a number from the Bureau of Labor Statistics called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

2025’s COLA might fall short, and it’s not just this year

Here’s the problem: Do you notice anything odd about the CPI-W, at least in the context of retirement? The CPI-W measures changing costs for wage earners and clerical workers, but retirees have different spending priorities, needs, and habits than people in the workforce. Think about how much more a senior citizen spends on healthcare than a younger worker — and healthcare costs have long been rising faster than the average prices in other categories.

As far back as the 1980s, there was an awareness the CPI-W was a bit of a square peg in a round hole. Congress directed the BLS to create an index that more accurately gauged inflation for the elderly, which led to the Experimental Price Index for the Elderly (CPI-E). The CPI-E places a heavier emphasis on healthcare costs relative to other categories in order to better reflect the reality of what retired Americans are spending their money on. Unfortunately, it is still imperfect as it is just a different balancing of the same items that go into the market basket used to calculate the CPI-W. It uses the same retail outlets, locations, and items, rather than an entirely new set designed from the ground up for seniors.

In more years than not, the CPI-E is higher than the CPI-W by a fraction of a percent. For example, in 2024, retirees got a 3.2% COLA. It would have been 4.0% if it had been based on the CPI-E. That gap may feel insignificant, but remember the power of compounding. Over time, small differences in annual growth rates can really add up. The Senior Citizens League (TSCL), an advocacy group, estimates Social Security checks have lost more than 30% of their purchasing power since 2000. That’s not insignificant.

The 2025 COLA is probably going to be less than retirees hope

The SSA will announce the COLA for 2025 on Oct. 10. With inflation continuing to ease, the COLA will likely fall around 2.5%, down from recent years but more in line with the historical norm. This is unlikely to provide too much comfort to the millions of retired Americans feeling the pinch of rising costs on their fixed budgets. A TSCL survey found 63% of seniors are worried their income won’t be enough to cover essentials like food and housing.

The $22,924 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

View the “Social Security secrets” »

The Motley Fool has a disclosure policy.

Related Posts

So you have $100,000 and you want to build it into $1 million by retirement. That’s great! Even if you have less — perhaps a

Okay, folks. It’s time to get serious about Social Security. I don’t like to be the person who sounds alarms and causes unnecessary panic. But

Image source: Getty Images The best credit cards have a lot of perks — cash back, travel rewards, purchase protection, and more. But what happens

Social Security benefits for spouses are a common source of confusion. MassMutual reports that 25% of surveyed adults near retirement age were unaware that spouses