BIG UPDATE: Announced cuts in Social Security benefits (if nothing changes) – Update on retiree situation

Recent projections for the cost-of-living adjustment (COLA) indicate that Social Security benefits will not see the anticipated increase. This news comes as a disappointment for many beneficiaries and retirees who rely heavily on these payments to cover their living expenses, particularly those who depend solely on Social Security for their income. According to Gallup, which has conducted surveys of seniors for 23 years, the reliance on Social Security benefits has consistently remained high, with 88% of retirees in 2024 reporting these payments as a “major” or “minor” source of income.

The eagerly awaited COLA announcement is set for October 10 at 8:30 a.m. Eastern time, a crucial date for millions of Americans who depend on Social Security as a financial lifeline.

Understanding the COLA Mechanism

The Social Security Administration (SSA) employs COLA as a yearly adjustment to account for price fluctuations in goods and services. When typical expenses rise by 2%, 3%, or more, the benefits are adjusted to help maintain purchasing power. This adjustment is intended to keep beneficiaries aligned with inflation and help them cope with rising costs.

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Historically, prior to the establishment of COLA in 1975, benefit adjustments were made sporadically by Congress. In fact, no COLAs were issued throughout the 1940s, resulting in 11 major modifications from 1950 to 1974. Since the introduction of COLA, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has served as the inflationary standard for determining annual adjustments.

How COLA is Calculated

The CPI-W is a multifaceted tool encompassing over six primary spending categories, each with specific percentage weightings. These weightings allow for the monthly reporting of a consolidated CPI-W figure. The most significant change is that the COLA computation focuses only on CPI-W measurements from the previous 12 months, specifically from July to September. If the average CPI-W for the current year’s third quarter exceeds the previous year’s average, benefits will see an increase based on the year-over-year percentage change, rounded to the nearest tenth of a percent.

Diminished Projections for 2025

Over the last 20 years, the average COLA has been a modest 2.6%. This average includes three years of deflation (2010, 2011, and 2016) where no COLA was applied, and the record-low adjustment of 0.3% in 2017. However, recent years have shown some recovery, with COLA figures of 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024—the highest increases seen in four decades. Unfortunately, July and August inflation reports from the Bureau of Labor Statistics have significantly dampened expectations for the 2025 COLA.

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Mary Johnson, a recently retired independent policy analyst specializing in Social Security and Medicare, has revised her projection for the 2025 COLA from 3.2% down to 2.6% following the latest inflation data. Both The Senior Citizens League (TSCL) and Johnson now agree on this estimate, which will benefit approximately 68 million Social Security beneficiaries. Based on an average payout of $1,782.74 as of July 2024, this adjustment would result in an additional $46.35 per check, although individual circumstances may cause variations in this amount.

A Historic Increase and Ongoing Challenges

While the projected 2.6% COLA represents the smallest percentage increase in four years, it aligns with the average adjustment over the past two decades. Notably, if realized, this would mark the first time since 1997 that Social Security COLAs have been increased for four consecutive years. By the end of 2022, benefits would have increased cumulatively by more than 22%, assuming the projected 2.6% adjustment takes effect.

Despite these increases appearing favorable on paper, there remain significant concerns regarding the adequacy of Social Security’s COLA in addressing the financial pressures faced by retirees. As we await the official announcement, it’s essential for beneficiaries to remain informed about how these changes may impact their financial stability and overall quality of life.

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