The projected Social Security cost-of-living adjustment (COLA) for 2025 has been adjusted downward to 2.6%, reflecting a moderation in inflationary pressures. This adjustment is crucial for Social Security recipients, as it helps their benefits keep pace with rising living costs. This projected increase is a decrease from the previous estimate of 2.7% made last month, indicating that inflation is cooler than initially anticipated.
The Social Security Administration (SSA) uses a specific measure of inflation, known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), to determine the COLA. The CPI-W rose by 2.9% over the past year, which is slightly below the forecasted increase of 3%. The COLA is calculated based on the average CPI-W for the third quarter of 2024 compared to the average for the same period in 2023. If there is no increase in the CPI-W, there will be no COLA adjustment. The SSA will announce the official COLA figure in October, after the third-quarter inflation data is fully compiled and analyzed.
Under the new COLA projection of 2.6%, the average Social Security retirement benefit, currently around $1,870 per month, would see an increase of approximately $49 per month. However, beneficiaries should be aware that this increase may not fully translate into additional disposable income. This is because Medicare Part B premiums, which are deducted directly from Social Security checks, are expected to rise. The Medicare Trustees have projected that the standard Part B premium for 2025 will increase to $185, up from the 2024 premium of $174.70. This projected increase in Medicare premiums will effectively reduce the net gain from the COLA adjustment.
The actual Part B premium amount for 2025 will be officially announced later this year by the Centers for Medicare and Medicaid Services (CMS). While the COLA is intended to help Social Security benefits keep pace with inflation, it has not fully protected beneficiaries from the erosion of purchasing power. Research conducted by The Senior Citizens League reveals that Social Security benefits have lost approximately 20% of their purchasing power since 2010. This significant loss highlights the ongoing challenge for many Social Security recipients who struggle to maintain their standard of living amidst persistent inflationary pressures and rising healthcare costs.
Overall, while the COLA increase provides some relief, the impact of higher Medicare premiums and the long-term loss of purchasing power emphasize the need for continued scrutiny and adjustment of benefits to ensure they meet the needs of retirees and other beneficiaries.