Social Security 2025: Cost-of-Living-Adjustment Increased to 3.2%, But Will It Keep Up?

• The 2025 Social Security cost-of-living adjustment (COLA) estimate increased to 3.2% due to persistently high inflation, rising from 1.75% in January to 3% in March.
• Despite a slight decrease in the consumer price index (CPI) from 3.5% in March to 3.4% in April, seniors face significant cost increases in essential items such as hospital services, transportation, shelter, and energy.
• Anticipated Medicare Part B premium increases for 2025, projected to rise by $10.30 per month, may offset most of the COLA increase, potentially diminishing its intended benefit to Social Security recipients.

After the government announced that April inflation was in line with experts' predictions, the most recent estimate of Social Security's cost-of-living adjustment 2025 increased to 3.2%, according to new figures released on Wednesday.

Due to persistently high inflation beyond the Federal Reserve's 2% objective, the 2025 COLA projection has increased during the year. In January, it was 1.75%; in February, it was 2.4%; and in March, it was 3%.

The consumer price index, a measure of the expenses of goods and services throughout the economy, released by the Labor Department shows that overall prices rose 3.4% from a year ago, down from 3.5% in March. Monthly prices increased by 0.3%, less than the 0.4% increase in the prior month.

The "consumer price index for urban wage earners and clerical workers," or CPI-W, serves as the basis for COLA. Although it decreased from 3.5% in March to 3.4%, Social Security beneficiaries continued to receive more than the 3.2% COLA they started getting in January. The spending habits of retired and handicapped adults-the majority of whom get Medicare benefits-are not included in the CPI-W.

The government said that the top five items that seniors spend the most money on had grown dramatically over the last year: hospital services surged 7.7%, transportation services increased 11.2%, shelter jumped 5.5%, and energy increased 5.1%.

Most, if not all, of the increase in COLA will probably be offset by anticipated Medicare Part B premiums for 2025.

The Medicare Trustee study, made public last week, projected that in 2025, Part B rates will increase by $10.30 per month to $185.00. That is a 5.9% rise from $174.70 in 2024. COLA does not take into account Increasing Medicare Part B premiums.

Read also:Zero COLA means no increase for your Medicare Premium

How is the COLA Determined?

The Social Security Administration uses the average annual growth in the CPI-W from July to September to calculate its COLA.

With a few minor variations, the urban wage earners' index generally corresponds to the monthly broad index released by the Labor Department.

Although COLA is intended to prevent Social Security claimants from having a poorer quality of life, it hasn't been effective in practice. According to the most recent U.S. statistics from the Census Bureau, the percentage of Americans 65 and older living in poverty rose from 10.7% in 2021 to 14.1% in 2022. The rise was the biggest in terms of age groups.

Furthermore, things can worsen because Social Security's funds are expected to run out in 2035.

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