Estimated Social Security COLA for 2025 - Woefully Insufficient for Today's Seniors
by Don Drake, Connelly Law Offices, Ltd. 8.9.24
"Numbers released in the spring of this year indicated that an estimated fifty-one million retired workers were receiving an average social security retirement payment of $1,915.26," said professional fiduciary and certified elder law Attorney RJ Connelly III. "Despite appearing modest, this amount significantly contributes to the financial stability of most retirees."
In 2022, social security played a crucial role in lifting approximately 16.5 million seniors aged sixty-five and over out of poverty, as revealed in a Gallup survey conducted in April of that year. The survey found that 88% of retirees considered social security a "major" or "minor" source of income, underscoring its significant impact on retirees' financial well-being.
"Retiree's financial future is always a major concern, given that, our attention is now focused on the upcoming cost of living increase (COLA) for 2025," said Attorney Connelly. "Recent data from the U.S. Bureau of Labor Statistics indicates a decline in inflation, highlighted in the June 2024 Consumer Price Index report. The Social Security Administration will use this inflation data to calculate the COLA for eligible individuals."
Traditionally, the Social Security Administration announces these adjustments every October, which are applied to monthly benefit checks issued the following year. However, some experts attempt to predict the COLA for the upcoming year before its official announcement. For instance, The Senior Citizens League (TSCL) estimates the COLA for 2025 to be around 2.63%, based on existing data and trends.
If those numbers are correct, the average COLA increase would be a meager $50.19 monthly, prompting many who advocate for seniors to say that this amount is not even close to equaling the increased costs incurred this past year.
How the Social Security COLA Is Determined
The Social Security Administration calculates the annual COLA, which assesses the percentage changes in the Consumer Price Index (CPI) during the third quarter from one year to the next. This data is then used to calculate the upcoming COLA.
Low CPI rates suggest Americans' average living expenses have not increased significantly recently. Conversely, higher rates indicate rising costs and more noticeable inflation. The primary goal of determining the COLA is to ensure that retirees have sufficient financial resources to meet their needs each year -- but does it?
Does the COLA Reflect True Inflation?
"The official measurement of inflation has faced criticism for decades due to its inadequacy in reflecting the true cost of living for most seniors," said Attorney Connelly. "Many argue that the conventional method fails to encompass two significant expenses: food and fuel. These essentials often experience price increases quicker than other consumer goods, resulting in a discrepancy where the COLA does not accurately mirror the financial challenges experienced by most seniors."
In response to this concern, the government presents two primary inflation rates: the core inflation rate, which excludes food and fuel prices, and the headline inflation rate, which incorporates these prices. Each of these rates serves distinct purposes and has its advantages and drawbacks.
The headline inflation rate is sometimes susceptible to temporary price fluctuations, such as those triggered by natural disasters, leading to short-lived price surges. Consequently, it may not fully capture enduring economic patterns.
Conversely, the core inflation rate omits items more susceptible to temporary fluctuations, offering a more stable measure of inflation. However, critics assert that this rate fails to accurately represent the impact of transient price surges on seniors, especially those on fixed incomes.
"Transient price increases can occur for several reasons, such as a hurricane halting oil pumping and refining in the Gulf of Mexico or a drought destroying crops in the Midwest," pointed out Attorney Connelly. "In these situations, prices would temporarily increase for a few months until oil output or crop production returns to normal levels. While economists overlook these short-term surges and focus on long-term trends, the crucial point is that despite the eventual price decrease, seniors on fixed incomes still must bear the burden of these temporary increases. This can pose a significant hardship for seniors, as even a temporary increase of a few hundred dollars a year could mean the difference between affording necessary medical treatment or being able to heat their homes."
Moreover, healthcare costs for seniors have escalated faster than other expenses, resulting in a higher inflation rate for elderly consumers. Consequently, many advocate for an additional inflation rate that specifically reflects the purchasing patterns of older consumers to ensure a more precise representation of their cost of living.
The Senior Citizens League
As mentioned earlier in this blog, TSCL issued a press release predicting the COLA to be an estimated 2.63% in July. In that release, they also stated concerns about rising prices that have outpaced the COLA increases. The release stated:
"From 2020 to 2023, the cost of the average grocery item with direct prices tracked by the CPI has risen by 24%. While eggs captured many headlines with a rise of 86%, many other key items, such as coffee, sugar, bread, and ham saw their cost increase by more than a third."
"Rising grocery prices is creating food insecurity for many retirees. Feeding America estimated that 5.5 million Americans age 60 and above suffered from food insecurity in 2021, in the most recent study available on the subject, and that number is likely higher today."
"In TSCL’s 2024 Senior Survey, which had more than 1,550 respondents from across the United States, 34% of retirees said they had visited a food pantry or applied for food stamps over the last 12 months. What’s more, 60% of respondents said food was the fastest-growing expense in their monthly budgets, which was more than double the next hardest-hit expense category, housing."
A Final Word
"Despite the recent higher-than-average increases in the COLA, older consumers are finding that their purchasing power continues to decline," said Attorney Connelly. "The essential costs for senior citizens have seen a substantial rise, going well beyond the increases in the COLA. For example, according to Bureau of Labor Statistics data, shelter costs are rising by 5.7% year-over-year, and hospital services are experiencing a 7.5% surge, the highest since October 2010. Transportation services have soared by 10.7%, while electricity costs have jumped by 5.0%. Unfortunately, retirement has become a source of anxiety for many older people, and we must fix the COLA to reflect the actual impact of inflation on our retired seniors."
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