Will retirees be in for a pleasant surprise when it comes to cost-of-living adjustments in 2025? The answer may be different from what you think

In most cases, retirees receive a Social Security cost-of-living adjustment (COLA). This increases your monthly benefit amount. In January of this year, the Senior Citizens’ League (TSCL) predicted that the number of retirees would increase by 1.4% in 2025.

But that estimate has changed. At first glance, the change in direction may seem like a positive thing for retirees. But that may not actually be reality. Here’s why:

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Retirees could get a bigger Social Security increase than expected.

While January COLA projections showed seniors would receive only a small benefit increase in 2025, TSCL’s most recent estimates from March of this year tell a very different story. According to the most recent update, the latest projection for COLA in 2025 is 2.6%.

If these estimates are realized, older Americans will benefit much more than originally anticipated. In fact, a typical retiree receiving an average monthly benefit of $1,907 would receive about $22 extra in their monthly check with a 2.6% increase.

Don’t get too excited about the bigger COLA

The reality is a bigger impression ~ no Something to be happy about. And when you look at the big picture, it’s clear why getting one can cause financial hardship for many retirees.

TSCL bases its estimates on data from the Consumer Price Index for Urban Wage and White Collar Workers (CPI-W). CPI-W is a price index used to measure how costs are changing for urban wage earners and office workers. It measures annual price adjustments for a basket of goods and services.

Social Security’s annual COLA is calculated based on how much the prices of these consumer goods have changed. Specifically, this calculation uses third quarter CPI-W data, which is obviously not yet available. However, TSCL looked at year-to-date figures and inflation projections when estimating the size of the COLA.

Initially, most experts expected inflation to subside this year, so the salary increase was expected to be smaller. But that’s not the case, with the latest CPI data for March showing costs rising 3.5%. Continued high inflation will likely mean that prices rise enough each year that CPI-W would require a 2.6% benefit increase for retirees to maintain their purchasing power.

Unfortunately, although COLA provides older people with more Social Security benefits, remain Your savings will not increase. And if inflation remains high enough to justify a larger-than-expected COLA, retirees could find their savings shrinking as prices continue to soar.

Inflation is bad for people with a lot of money saved, especially retirees who need to maintain a relatively conservative investment portfolio until they need the money in the near future. Therefore, a higher COLA is ~ no It’s a good result for them. If your savings and investment returns outside of Social Security are not sufficient to cover your increasing expenses, you may have difficulty maintaining your standard of living.

Currently, next year’s COLA has not yet been determined. And retirees can’t personally do anything to change that, other than hope that CPI-W in the third quarter isn’t that bad. But what they can do is think realistically about what the big benefit increase means for them and make the necessary adjustments to their budgets to avoid spending their savings too quickly, even though inflation is still higher than most would like.