Analyst Predicts Smaller Social Security Payment Increases Expected in 2025

Analyst Predicts Smaller Social Security Payment Increases Expected in 2025

In a recent report by the Senior Citizens League, it is predicted that the cost-of-living adjustment (COLA) for next year’s Social Security payments may be significantly lower than in previous years due to inflation. The Social Security Administration uses inflation as a determining factor for the COLA, and with inflation on the rise, it is expected that the adjustment for 2025 will be smaller.

Based on the January consumer price index for urban wage earners, which rose by 2.9 percent, the Senior Citizens League estimates that the COLA for 2025 will be around 1.75 percent. However, it is important to note that this is just a forecast based on data from January 2024, and the final COLA may differ as it is calculated on the average rate of inflation during the third quarter compared to the same period a year ago. There are still eight months of data to come in, and the final COLA could be influenced by changing economic conditions.

Mary Johnson, an analyst from the Senior Citizens League, explained that her estimates change monthly based on the most recent consumer price index data. She emphasized that there is still a lot of time for things to change before the final COLA for 2025 is determined. Despite this uncertainty, Johnson believes that inflation rates are expected to fall from 2023 levels, which would result in a lower COLA for 2025.

The Senior Citizens League is urging Congress to work together in a bipartisan manner to ensure the strength of Social Security and provide long-term solutions for current and future retirees. Regardless of the COLA for 2025, it is important to address the rising costs of housing, hospital care, auto insurance, and other expenses that impact retirees.

In addition to potential changes in the COLA, more Social Security recipients will face taxation on their benefits starting this year. This is due to fixed-income thresholds that have not been adjusted for inflation since the tax was implemented in 1984. As a result, a growing number of retirees are being affected by this tax.

In 2022, over 71 million Social Security recipients received a 3.2 percent increase in their benefit payments, marking the third consecutive year of increases due to high inflation. The previous year saw an 8.7 percent increase, while the year before that saw a 5.7 percent bump.

Federal Reserve Bank of San Francisco President Mary Daly has acknowledged that there is more work to be done to ensure stable prices, as the recent inflation rate of 3.1 percent was higher than anticipated. With inflation declining rapidly last year, the Fed’s targeted measure of the personal consumption expenditures price index fell from 5.5 percent in January to 2.6 percent in December. Despite this, unemployment remains relatively low at 3.7 percent.

The Fed has gradually raised its policy rate since March 2022 in an effort to manage inflation, which currently stands at a range of 5.25 percent to 5.50 percent. However, Daly emphasizes the need for patience and careful consideration before taking further action to maintain stable prices.

While projections suggest that inflation is on track to reach the Fed’s 2 percent target, more time and data are needed to confirm these predictions.

In conclusion, it is expected that the COLA for Social Security payments in 2025 will be smaller compared to previous years due to inflation. However, it is important to note that these predictions are based on current data and may change as economic conditions evolve. The Senior Citizens League is calling on Congress to work together to ensure the long-term strength of Social Security and address the rising costs faced by retirees.