Mixed message for seniors comes as forecasts for the 2025 Social Security COLA will be updated

In 2022, consumers witnessed an unprecedented rise in inflation that left people grappling with skyrocketing prices. The Federal Reserve took action by increasing the Federal Funds Rate (FFR) to slow down the movement of money in the economy and curb the rising prices. Despite the measures taken, prices continued to surge, severely impacting beneficiaries’ purchasing power. In response, the Social Security Administration (SSA) offered a Cost-of-living adjustment (COLA) of 8.7 percent in 2023, followed by another adjustment worth 3.2 percent in 2024. These annual adjustments aim to protect the purchasing power of beneficiaries against inflation. Inflation can be challenging, but the government is committed to protecting the public from its negative effects. Despite the pace of price increases slowing down in some cases, prices for goods continue to rise. In March, the Consumer Price Index (CPI) increased by 0.4 percent, following the 0.4 percent increase in February, marking the highest monthly increase since September 2020.

While the news may be discouraging for those on a fixed income who rely on SSA benefits, there’s still hope.

The SSA calculates the COLA using the Bureau of Labor Statistics (BLS) CPI for Urban Wage Earners and Clerical Workers (CPI-W). To determine the COLA, the SSA compares the CPI-W for the third quarter of the year (July, August, and September) before the CPI-W for the current year’s third quarter. It will be announced in mid-October. Throughout March, the BLS reported an increase of 0.7 percent before seasonal adjustment (or 0.4 percent when seasonally adjusted). Already this year, prices have increased 1.1 percent. According to the Bureau of Labor Statistics, to exceed the 3.2 percent COLA applied to benefits in 2024, prices would need to rise by 1.8 percent between now and September. The COLA will be announced in mid-October.

Next week, the BLS will release the April CPI report which will provide more information to update the 2025 COLA forecasts further.

The purchasing power of seniors is under threat

It’s important to remember that the forecast for the 2025 cost-of-living adjustment (COLA) could change over the next few months until the official announcement. While beneficiaries would certainly appreciate a sizeable COLA increase, it’s worth noting that it won’t be applied to benefits until January of the following year. In some cases, deflation may offer more significant relief. There are usually only minor price fluctuations after the COLA is applied to benefits each year. However, in a high-inflation environment, a one-time benefit increase can put beneficiaries in a difficult position. Inflation can reduce their purchasing power, making it harder for them to afford the things they need, such as groceries and medication.

This reduction in purchasing power can hurt seniors’ health, as they may skip meals or ration their medication due to financial constraints.