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Social Security COLA prediction 2025: 3 things to know right now
View Date:2024-12-24 07:20:14
Social Security benefits can go a long way in retirement, and most beneficiaries look forward to getting a raise each year via the cost-of-living adjustment (COLA).
Each October, the Social Security Administration (SSA) announces the COLA for the upcoming year. The COLA for 2024 was 3.2%, meaning beneficiaries received a 3.2% boost in benefits starting in January. This adjustment aims to help Social Security keep up with inflation over time.
While we still have a few more months before the SSA officially announces, some experts are already forecasting where the 2025 COLA may land. Here are three things you need to know.
1. Next year may see a lower COLA
In mid-April, analysts at advocacy group The Senior Citizens League announced a prediction for next year's COLA. This forecast is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a report from the Bureau of Labor Statistics that tracks inflation data.
2. A lower COLA is generally a good thing
Some beneficiaries may be disappointed to see that the 2025 prediction is lower than what they've received in previous years. In fact, if this forecast is correct, it will be the lowest COLA since 2021.
However, inflation was also out of control from mid-2021 through most of 2023, which is why the COLAs in recent years were much higher than average. Because the COLA is based on inflation data, a smaller adjustment means inflation may be slowing down. For those struggling to make ends meet, lower overall costs may be more helpful than slightly larger checks.
3. Social Security is still struggling
Although the COLA is designed to help Social Security keep up with rising costs, it hasn't always managed to do that. In fact, a separate report from The Senior Citizens League found that Social Security has lost around 36% of its buying power since 2000, despite annual COLAs.
While the 2025 COLA can give beneficiaries a small boost in benefits, it may be wise to avoid relying too heavily on Social Security if you have the option. If benefits continue to lose buying power, your checks may not go nearly as far in the coming decades, even with annual adjustments.
Of course, not everyone has the luxury of multiple income sources. If you have only benefits to lean on, the COLA will still be a lifeline each year. But if you can afford to save more or pick up an extra source of income, it will be easier to reduce your dependence on Social Security.
We won't know the official COLA for another few months, but for now, it can still be helpful to know what might happen. When you have a rough idea of where the 2025 COLA might land, it will be easier to prepare for how your benefits might change next year.
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The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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