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As government inflation data shows a slight decrease, many retirees still find themselves struggling with higher costs. Unfortunately, the upcoming Social Security cost-of-living adjustment (COLA) for 2025 may not offer much relief.
According to Mary Johnson, an independent Social Security and Medicare policy analyst, the estimated COLA for 2025 stands at 2.6%, a decrease from the 3.2% boost in benefits seen in 2024. This figure is significantly lower than the 8.7% and 5.9% increases beneficiaries received in 2023 and 2022, respectively.
Despite the decrease, the 2025 COLA aligns with the average adjustments over the past two decades, highlighting the ongoing impact of inflation on retirees.
The actual COLA for 2025 is subject to change, as it is based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Social Security Administration typically announces the official COLA in October.
Challenges Faced by Older Americans
A recent AARP survey revealed that 61% of adults aged 50 and older worry about having enough financial support in retirement. Inflation remains a major concern, with 37% worried about meeting basic expenses like food and housing.
High inflation disproportionately affects retirees, as their fixed incomes may not increase in line with rising prices. While Social Security benefits receive annual inflation adjustments, some experts argue that these increases have not kept pace with the real cost of living.
According to the Senior Citizens League, the average Social Security benefit has lost 20% of its purchasing power since 2010. To maintain the same buying power as a decade ago, the average monthly benefit for retired workers would need to increase by nearly 20%.
Advocates suggest using the Consumer Price Index for the Elderly (CPI-E) as a more accurate measure for cost-of-living adjustments, reflecting the specific expenses retirees face. However, there is debate among experts about the effectiveness of changing the adjustment measure.
While the CPI-E has previously outpaced the current measure, recent research shows a narrowing gap in inflation rates. As a result, switching to the CPI-E may not be the most optimal solution, according to the Center for Retirement Research at Boston College.