Seniors are hoping for a generous inflation adjustment. But will it actually happen?
Even though we’re only halfway through 2024, many retirees collecting Social Security benefits are already curious about what the cost-of-living adjustment (COLA) will look like in 2025. And the reality is, we won’t know for sure until October. But if you’re looking for clues about what Social Security’s COLA might be next year, there are two factors to look for.
1. Inflation
Stubbornly high inflation has been a problem for consumers since 2021. Fortunately, after peaking in 2022, it is cooling down, leading to more moderate increases in the cost of living in recent years.
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But you can’t just use today’s food spending as a proxy for how much Social Security will pay in 2025. Remember, these payments are calculated using third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). For Social Security benefits to increase, the CPI-W must increase from one year to the next.
Based on the most recent CPI-W data we have, the current estimate for next year’s COLA is 2.57%, courtesy of the nonpartisan Senior Citizens League. But that number could rise or fall depending on inflation trends in the coming quarter.
2. The cost of Medicare Part B
Medicare Part B costs are not used to calculate COLAs. But if Part B costs increase from one year to the next, that extra money is deducted from seniors’ COLAs.
In early 2024, Social Security benefits increased by 3.2%, so the average monthly benefit rose from $1,848 to $1,907. That’s a $59 monthly increase, not including Medicare Part B. This year, however, the standard Part B premium increased from $164.90 to $174.70—an increase of $9.80 per month.
It’s not a given that everyone on Medicare will also be on Welfare, or vice versa. But for those enrolled in both programs, that $9.80 came from this year’s COLA. That means the average Welfare recipient didn’t automatically pocket an extra $59 per month—they may have only gotten $49.20.
Previously, Medicare Part B costs were expected to increase by $10.30 per month, to $185, in 2025. Unfortunately, this could reduce Social Security’s future COLA.
Try your best to manage your expenses well
If you’re relying on your upcoming Social Security COLA to make ends meet, there probably isn’t much wiggle room in your budget, so it’s important to do everything you can to manage your spending wisely.
First, evaluate your expenses and see if there are any expenses – even small ones – that you can reduce or eliminate. Next, consider whether moving or moving to a less expensive home would make sense.
If you have a super-cheap mortgage rate on your current home, moving may not save you as much money when you need to finance a new home. However, if you have a paid-off home with expensive maintenance and property tax costs, buying a cash home with lower housing costs may be a smart decision.
Finally, consider entering the gig economy if Social Security makes up the majority of your income and you’re strapped for cash. Even an extra $100 a month could give you some breathing room so you don’t have to worry so much about the prospect of a lower COLA in 2025.
