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Social Security COLA estimate dips, but seniors remain in a hole. Here’s why.

The latest projection for Social Security’s cost-of-living adjustment (COLA) in 2025 has decreased to 3%, following a reported 3.3% inflation rate in May, according to new calculations released on Wednesday.

This adjustment reflects a moderation in inflation from earlier this year, although it still falls short of meeting the needs of seniors to keep pace with rising costs, noted Mary Johnson, a retired analyst from the nonprofit Senior Citizens League who monitors COLA estimates.

The consumer price index (CPI), a gauge of goods and services costs, increased by 3.3% in May compared to a year earlier, as reported by government data on Wednesday. This figure represents a slight decline from April’s 3.4% and is below the 3.4% forecast by FactSet economists. The core CPI, which excludes volatile food and energy prices, rose by 3.4% annually, down from April’s 3.6% and below the anticipated 3.5%.

COLA adjustments are determined by the “consumer price index for urban wage earners and clerical workers” (CPI-W). While this index decreased to 3.3% from April’s 3.4%, it still exceeds the 3.2% COLA that Social Security recipients began receiving in January. The CPI-W does not fully account for the spending patterns of retired and disabled adults, many of whom rely on Medicare benefits.

How is COLA calculated?

Each year, the Social Security Administration bases its COLA on the average annual CPI-W increases from July through September. Although closely aligned with the Labor Department’s monthly index, CPI-W has slight variations.

How are seniors impacted by COLA?

According to Johnson, the CPI-W assumption that older adults allocate approximately two-thirds of their income to housing, food, and medical expenses differs from the actual expenditure patterns reported by the Bureau of Labor Statistics, where seniors allocate about three-quarters of their income to these categories. This disparity suggests that COLA estimates based on CPI-W may underestimate real senior inflation by more than 10%.

Major expenses for seniors have seen significant increases over the past year: Hospital services rose by 7.2%, transportation services surged by 10.5%, shelter costs jumped by 5.4%, and electricity prices climbed by 5.9%, as reported by the government. Food costs also increased by 2.1%.

What was the COLA for 2024?

In 2024, Social Security recipients received a 3.2% increase in their benefits at the start of the year, boosting the average retiree’s monthly benefit by $59.

Seniors continue to fall behind

While COLA adjustments aim to prevent Social Security recipients from experiencing a decline in their standard of living due to inflation, the reality shows a different outcome. Poverty rates among Americans aged 65 and older increased to 14.1% in 2022 from 10.7% in 2021, marking the largest rise among any age group, according to the latest data from the U.S. Census Bureau.

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