Inflation is a double-edged sword for Social Security recipients. When inflation goes up, it cuts into the buying power of seniors who are on a fixed income. But it also leads to a higher cost-of-living adjustment (COLA) that will boost next year’s Social Security payments. When inflation goes down it’s easier to pay the bills — but it leads to a lower COLA the following year. That’s how things are shaping up for 2025.
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Although it is still early in 2024, recent inflation trends could mean a much smaller Social Security COLA next year. The Senior Citizens League (TSCL), a nonpartisan seniors advocacy group, estimates that the 2025 COLA will be 1.75% in 2025 based on the January inflation report from the U.S. Bureau of Labor Statistics.
The report, issued this week, showed that the January CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) rose 2.9% from the previous year. That’s the index used to determine the annual COLA increase.
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The 2.9% estimate is likely to change as the year goes on. But if inflation holds steady or drops even further, it’s a pretty sure bet that the 2025 COLA will be down from this year’s 3.2% adjustment and way down from the 8.7% COLA issued in 2022.
As TSCL noted in a Feb. 13 press release, the COLA is calculated on the average rate of inflation during the third quarter, which is compared against the inflation rate from the previous year’s third quarter.
“In other words, there are another eight months of data to come in, and a lot could change,” Mary Johnson, Social Security and Medicare policy analyst at TSCL, said in a statement.
For now, TSCL’s 2025 COLA estimate is higher than the one issued by the Congressional Budget Office, which forecast a COLA of 2.5% next year.
“The CBO uses a different methodology than TSCL’s, but clearly, inflation rates are expected to fall from 2023 levels, and the COLA for 2025 will also be lower,” Johnson said.
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This article originally appeared on GOBankingRates.com: Bad News for Social Security Recipients: Slowing Inflation Means a Smaller COLA in 2025
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