The latest estimate of Social Security’s cost-of-living adjustment for 2025 rose to 3% after the government reported hotter-than-expected inflation in March, new calculations showed Wednesday.
The higher COLA adjustment was the third this year after the reacceleration of inflation each month in 2024. The 2025 COLA estimate was 1.75% in January, and 2.4% in February.
The consumer price index (CPI), a broad measure of goods and services costs, rose 3.5% in March from a year earlier, according to government data reported Wednesday. That’s up from 3.2% in February and more than the 3.4% average forecast from economists. So-called core rate, which strips out volatile food and energy prices, rose 3.8% on the year, flat from February but above predictions for 3.7%.
COLA is based on the subset “consumer price index for urban wage earners and clerical workers,” or CPI-W. That figure jumped from February to 3.5%, up from 3.1% in the prior reading and outpacing the 3.2% COLA Social Security recipients began receiving in January.
“That means older consumers are losing buying power,” said Mary Johnson, retired Social Security and Medicare Policy analyst.
And, again, all the things seniors spend the most on saw some of the sharpest gains. Shelter rose 5.7% year-over-year and hospital services jumped 7.5%, the highest since October 2010, Bureau of Labor Statistics data showed. Transportation services soared 10.7% and electricity jumped 5.0%.
How is COLA calculated?
The Social Security Administration bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers from July through September.
The index for urban wage earners largely reflects the broad index the Labor Department releases each month, although it differs slightly. Last month, while the overall consumer price index rose 3.5%, the index for urban wage earners increased 3.5%.
What was 2024’s COLA?
Older adults received a 3.2% bump in their Social Security checks at the beginning of the year to help recipients keep pace with inflation. That increased the average retiree benefit by $59 a month.
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Seniors fall more behind
COLA is meant to help Social Security recipients keep pace with inflation so their standard of living doesn’t deteriorate, but it hasn’t worked in reality. Poverty has increased among Americans age 65 and older, to 14.1% in 2022 from 10.7% in 2021, which was also the largest jump among any age group, according to the latest U.S. Census Bureau data.
And now, with March inflation outpacing the 3.2% COLA recipients received this year, seniors are falling deeper in the red.
That makes retirement “anything but carefree” for many, Johnson said.
And with tax season coming to a close Monday, more seniors likely discovered they owe taxes on their Social Security this year. The 5.9% COLA increase in 2021, the 8.7% bump in 2023 and the 3.2% rise this year increased people’s incomes. How much of your Social Security is taxed depends on how much income you have. Some states may also take a cut.
Because income thresholds that subject Social Security benefits to taxation have never been adjusted for inflation since the tax became effective in 1984, more older taxpayers become liable for the tax on Social Security benefits over time, and the portion of taxable benefits can increase as retirement income grows, Johnson said.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
This article originally appeared on USA TODAY: Social Security 2025 COLA estimate raised because of inflation rise
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