Social Security Benefits Set for 2025 Adjustment: What Retirees Can Expect

 Social Security Benefits Set for 2025 Adjustment: What Retirees Can Expect

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In April, nearly 51 million retired worker beneficiaries received an average Social Security check of $1,915.26. While this amount may not be life-changing, Social Security benefits are crucial to the financial stability of most retirees.

These benefits lifted approximately 16.5 million seniors aged 65 and over out of poverty in 2022 and were a significant source of income for 88% of retirees surveyed by Gallup this past April. Given the importance of this income, attention is now focused on the 2025 cost-of-living adjustment (COLA).

Social Security’s COLA adjusts benefits to account for inflation. If the cost of goods and services rises, benefits should ideally increase correspondingly to maintain purchasing power. Before 1975, COLAs were determined arbitrarily by Congress, with only 11 increases between 1940 and 1975.

Since 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has been used to measure annual inflation for Social Security adjustments. The CPI-W encompasses various spending categories, with each contributing to the overall monthly inflation figure. However, only the CPI-W readings from the third quarter (July through September) are used to calculate the COLA for the upcoming year.

If the average CPI-W reading from the third quarter of the current year is higher than the same period from the previous year, it indicates inflation, and beneficiaries will receive an increased payout. This year-over-year percentage change, rounded to the nearest tenth of a percent, determines the increase in Social Security checks.

In recent years, Social Security beneficiaries have seen substantial increases in their checks, with COLAs of 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024. The average COLA over the past 20 years has been 2.6%, so beneficiaries are hopeful for another above-average increase in 2025.

On May 15, the U.S. Bureau of Labor Statistics released the April inflation report, indicating a 3.4% rise in the CPI-W over the past 12 months. This figure remains above the Federal Reserve’s target of 2% inflation. The Senior Citizens League (TSCL) has forecasted a 2025 COLA of 2.7%, slightly above the long-term average.

For retired workers, who received an average check of $1,915.26 in April, a 2.7% COLA would result in a $52 monthly increase, bringing the average check to about $1,967. Workers with disabilities and survivor beneficiaries would also see increases of $42 and $41, respectively.

Despite the anticipated increase, the rising costs of essential expenses like housing and medical care mean that the purchasing power of Social Security benefits is still declining. Seniors spend a higher percentage of their income on these necessities, and inflation in these areas remains high.

The challenge of maintaining purchasing power persists, with a TSCL study indicating a 36% decline in the purchasing power of Social Security dollars between January 2000 and February 2023. Without changes to how COLAs are calculated, beneficiaries may continue to face financial struggles despite periodic increases.

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