Social Security Recipients on Track for a Smaller Raise Next Year
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Here's your money briefing for Monday, September 16th. I'm J.R. Whalen for The Wall Street Journal. This summer's inflation readings have given us a preliminary idea of what the monthly increase for Social Security recipients will be in 2025.
It's looking like about two and a half percent for next year, which is significantly lower than we've seen in a while, but yet also reflects the fact that inflation is lower than it's been in a while.
But the lower cost of living adjustment isn't necessarily a bad thing for retirees. We'll run the numbers with Wall Street Journal reporter Anne Tergesen after the break.
Listen at schwab.com slash washingtonwise.
We're getting a clearer picture of what next year's monthly Social Security increase is going to be. Wall Street Journal retirement reporter Ann Turgason joins me. Ann, how is the Social Security Cost of Living Adjustment, or COLA, calculated?
It is calculated based on a consumer price index for urban workers, to be specific.
How is the Social Security COLA (cost‑of‑living adjustment) calculated?
But the one that they look at is the July, August, and September data. And we just had the August data come out. And so we can get a pretty good sense of what that COLA is going to be.
So based on how the consumer price index has trended recently, what kind of an increase can retirees expect?
Nonprofits that follow this are saying it's looking like about 2.5% for next year, which is significantly lower than we've seen in a while, but yet also reflects the fact that inflation is lower than it's been in a while.
Now, I know the 2.5% is an estimation so far, but based on that, what's the estimated dollar increase people might see per month?
I calculated that for the average Social Security check, which is about $1,900, a little more than that currently. And based on a 2.5% COLA, I think the average person would see about a $50 a month increase.
When will recipients see that increase in their checks?
Starting in January.
The smaller increase is an indication that inflation has cooled off, but that doesn't mean prices are coming down, right?
Right. So people get really confused by this. I mean, in fact, if prices were to come down, it would be a sign of economic weakness. In fact, an economist I spoke to said, you know, if we get broad based, what they call deflation, when prices come down, that often is a sign of an economic weakness. recession on the order maybe of something even worse. So broad-based deflation isn't something that we should want to see. So in fact, the inflationary spike we've had since the pandemic is baked in at this point, barring something like some economic calamity that would cause prices to go down. So we're sort of permanently stuck at higher price level in general. Overall, the way to get out of that, the way to make life more affordable is for wages to go up.
So that's where the COLA is important because the objective with the COLA isn't to give people a raise. You know, when you're in the workforce, you might get raises and some of those raises are intended to keep you on a par with inflation so that you're not losing ground economically. However, of course, sometimes there are merit raises or promotions, and those raises can take you to the point where you're getting an improvement in your cost of living. The COLA is not intended as akin to a merit raise. It's intended to keep retirees from losing ground to inflation.
What would happen if inflation were to spike in the weeks after the monthly increase for 2025 is officially announced? Could that figure be adjusted to keep pace?
So what happens then is that that will then get baked into next year's calculation because that'll raise the price level such that when they go next July, August, and September's data will incorporate that higher price level, will reflect it. So in effect, the COLA catches up over time. When inflation is rising, the COLA often lags a little bit.
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