Fleetwood Mac's "Don't Stop" is an anthem that spans generations. Most people of all ages adhere to its advice to "don't stop thinking about tomorrow." But if you're a retiree, this is especially true when it comes to knowing how your Social Security benefits will change.
You won't know how much the cost-of-living adjustment (COLA) will be tomorrow, though; the official announcement comes in mid-October. However, the Social Security COLA countdown is on. Here's what your increase will likely be as things stand right now.
Looking ahead
The Social Security Administration (SSA) calculates the annual COLA using inflation data from the third quarter. Specifically, the agency compares the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for Q3 against the average for the same period in the prior year. The percentage increase (if any) becomes the COLA for the next year.
Although we haven't made it to Q3 yet, many observers watch the monthly inflation reports from the Bureau of Labor Statistics (BLS) like a hawk to get a feel for what the Social Security COLA might be. The Senior Citizens League (TSCL), one of the largest nonpartisan groups advocating for American seniors, updates its COLA forecast every month after the BLS data is released.
You might have heard that inflation appears to be on the upswing. In March, it rose more than it did in February. TSCL doesn't just use the monthly figure, though. It plugs in the latest number into a model that attempts to predict inflation in Q3.
As of now, TSCL forecasts the 2025 COLA will be 2.6%. This reflects a smaller increase than the 3.2% seniors received in 2024 and less than one-third of the 8.7% adjustment received in 2023.
Different ways of estimating what the COLA might be
Instead of trying to predict what the Social Security COLA might be in Q3, it's possible to look at what it would be right now. There are several ways to do this. Here are three of them.
First, take a look at how much the latest monthly CPI-W number has risen year over year. Using this approach, the 2025 COLA would be 3.5%. The main downside of this simplistic approach is that it only uses one month in its comparison.
Another alternative is to compare the average CPI-W of the first quarter of 2024 against the average from the same period in 2023. Your 2025 Social Security increase would be 3.2% with this approach, matching this year's COLA. Of course, the inflation trend in Q3 may differ from Q1.
It's also possible to calculate the increase between the average CPI-W in 2024 Q1 and the average in 2023 Q3. This approach yields a much lower COLA of 1%. The major drawback of this method is little time has elapsed between the two periods, causing the increase to be much smaller than year-over-year comparisons.
A lot can happen between now and October
I suspect TSCL's projected COLA of 2.6% is the best estimate of all these numbers. In April 2023, the organization predicted the 2024 increase could be slightly under 3% -- not too far below the actual adjustment.
However, a lot can happen between now and October. Inflation could again tick downward as the Federal Reserve's aggressive interest-rate hikes in 2022 continue to work their way through the economy. On the other hand, tensions in the Middle East could cause oil prices to rise and lead to a resurgence in inflation.
Perhaps the best thing for retirees to do in the meantime is to control spending to the extent possible. If you live within your means, then whatever additional money you receive from the 2025 COLA will be a bonus.
