Between A Rock and A Hard Place - 2025 COLA Realities

[GailL1]

So according to the number thus far in 2025, inflation from regular sources seems under control - but any tariffs applied to foreign good could change that, with the inflationary nature of tariffs.

So on one hand, those who are looking forward to a nice COLA increase in 2025 may or may not be disappointed - we have (6) more months of figure collecting by the Board of Labor Statistics to determine what the COLA  will be in 2025.

CNBC.com 04/10/2025 - Social Security cost-of-living adjustment projected to be lower in 2026, estim... 

Key Points:[ from link ]

• Social Security beneficiaries saw a 2.5% cost-of-living adjustment in 2025.
• The COLA adjustment for 2026 may not be as large, according to estimates based on the latest government inflation data.
• Those early estimates could change due to potential inflationary pressures from tariffs, experts say.

The Social Security cost-of-living adjustment for 2026 is projected to be the lowest increase that millions of beneficiaries have seen in recent years.

This could change, however, due to potential inflationary pressures from tariffs. 

Recent estimates for the 2026 COLA, based latest government inflation data, place the adjustment to be around 2.2% to 2.3%, which are below the 2.5% increase that went into effect in 2025.

The COLA for 2026 may be 2.2%, estimates Mary Johnson, an independent Social Security and Medicare analyst. Meanwhile, the Senior Citizens League, a nonpartisan senior group, estimates next year’s adjustment could be 2.3%.

If either estimate were to go into effect, the COLA for 2026 would be the lowest increase since 2021, when beneficiaries saw a 1.3% increase.

.. . . . . As the Covid pandemic prompted inflation to rise, the Social Security cost-of-living adjustments rose to four-decade highs. In 2022, the COLA was 5.9%, followed by 8.7% in 2023 and 3.2% in 2024.

The 2.5% COLA for 2025, while the lowest in recent years, is closer to the 2.6% average for the annual benefit bumps over the past 20 years, according to the Senior Citizens League.

To be sure, the estimates for the 2026 COLA are indeed preliminary and subject to change, experts say.

[more at link - end copy/paste]

We have (6) more months of data (thru Sept. 2025) to be collected before the final COLA is announced for 2026.  

[WebWiseWoman]

Hi, @GailL1,

So I watch your posts as an expert in many things.

This, though, makes me wonder. 

Any of us who are on full social security retirement with Medicare know the COLA doesn't even come close to or cover Part-B premiums, so actually doesn't offer further benefit/money so worrying about a COLA more than 7 months away seems either worthless or inciting...

Just asking why talk about something so far away? And won't be so rewarding for most?

[GailL1]

@WebWiseWoman 

I would suggest that you learn much more about how the COLA is calculated - it isn’t just for Social Security beneficiaries asI am sure your know.

The Board of Labor Statistics runs many different inflation numbers - and most of these is an average of the entire US - rural, suburban and urban - 

The things that are measured are relative to all groups and actually the list is pretty complete and inclusive but like I said, the type, the amount and the extensiveness of any item is relative to any given group.  

Example:  everybody has healthcare cost though different.  Part B premium cost are relative to people that have Medicare but it is healthcare cost all the same. The type of coverage does not matter; they are all apart of the healthcare inflation measure.  Seniors (62 and over) are not singled out in the CPI-W for an increase and IF we ever change to the one that says it considers more of senior cost R-CPI-E, it only adds 0.02% to the overall increase.  Over the long haul, this might make some difference - although slight.

Sure looking at the statistics now is important for the planning - financial planning which we all have to do - It may seem useless when there could be something that is outside of the realm of control that affects a COLA - like the Pandemic - but it is altogether a different animal when the increase is based on something that is controllable - like Tariffs.   

But in this analysis, we are within a Rock and a Hard Place, because with higher inflation we get a bigger COLA - with lower inflation we get a lower COLA OR we may get NO COLA at all based in the ending figures in Sept 2025 as compared to Sept 2024.  The COLA is based on the change from one year to the next.

 We want a higher COLA - right?  But the inflation figures without the added inflation stressor of Tariffs - we only have a small amount of inflation - 2% or lower - depending on what the end figures show.

BTW, I am only pointing out what the articles from CNBC says.  

[WebWiseWoman]

Absolutely, Gail, I'll "learn mush more"...

[GailL1]

Whoops - corrected it - sorry

[papawofboo]

I wish the people who comes up with this figure would tell where they buy groceries, clothes, items for their house, even the plants they buy every spring. I know they aren't shopping at Kroger, Wal-Mart, Home Depot. I guess the simple way to look at it is this, Dollar Tree went from "everything is a dollar" to $1.25++. I think that is just a tad over 2.5%.

This past year was the first time in 3 years that our rent increase didn't take the total increase of our SS. Not that the increase was that much, it was more of less rent increase. When one item takes the whole increase we get in SS, then how are we to overcome the other increases? I don't know what you floks do but I stay at home and watch flowers grow.

[GailL1]

@papawofboo 

It helps to understand what is measured for this important annual measure of inflation.  From AI general.

The Bureau of Labor Statistics (BLS) uses a market basket of goods and services to calculate the Consumer Price Index (CPI), which tracks inflation. This basket includes a vast array of items, categorized into eight major groups: Food and Beverages, Housing, Apparel, Transportation, Medical Care, Recreation, Education and Communication, and Other Goods and Services. Each category is further divided into subcategories and specific items, with over 80,000 items in total. 

I am not an actuary nor even a good mathematician but you can look at the depth and breath of the items the BOLS analyzes  to come up with their figures - this one is food -

BLS.gov - Table 9. Producer price indexes for commodity and service groupings and individual items, ...  

Now IF there is a decrease in some of the items like gasoline it offsets the overall whole - so it the bottom drops out of gas prices for some reason - then that lowers any increase in other areas of the market basket of goods and services.

March 2025 was the 1st time in years that the rate of inflation actually decreased.  Not really a good thing for our economy as a whole IF this continues - but we know it won’t because we see what the effect of Tariffs have already had on inflation this month especially imported goods - those figures will be out in mid-May 2025.

Remember also that the total figure is also based on the US as a whole - rural, suburban, and urban.   

BLS.gov - Consumer Price Indes: Overview 

BLS.gov - Consumer Price Index: Concepts 

[Tonster521]

@GailL1Your replies provide a very good explanation of CPI and COLA. In addition, your links to BLS.gov especially the Consumer Price Index:Concepts are a must read for folks interested in learning more about how the BLS measures inflation. As you know, many folks want the SS program to cover all of the inflation increases even though the SS program is designed to represent only about 40% or less of Old Age (retirement) income.

[GailL1]

@Tonster521 wrote

.. . . . many folks want the SS program to cover all of the inflation increases even though the SS program is designed to represent only about 40% or less of Old Age (retirement) income.

=================================

You are spot on in that evaluation.  Part of the BLS reasoning is that people have some wiggle room in their finances -  You buy this brand of toilet paper that is 3-ply and sooo soft but then the price goes up, you switch to 2-ply and miss some of the softness but it still does the job.  

But what worries me is that many folks have already been reduced to 1-ply and now are on their way to the toilet paper large stores use in their public restrooms - the lower than 1-ply variety.  Then they can’t even get hold of a catalog or newspaper to use, since those have for the most part disappeared too.

A funny analogy - but it is true.  Years and years of just earning to get by, not putting away enough to support themselves once they are no longer working.  Then the product substitution hits the bottom - and what are they left with to even make any changes?  

There does need to be some alternative plans - but what when you are out of options to pursue.   But I still hear and read them complaining about their lot.  

So if we get inflation under control to near zero - there very little to no COLA.  If we reach “Stagflation”  there is definitely not COLA.  But what about if we reach DEFlation - would they give any money back to the Federal kitty?   

[papawofboo]

I never seen or heard the 40% amount. Alway knew it wasn't enough but sure didn't know it was that low. I guess it stands to reason since this 2--3% increases aren't getting the job done. 

[Tonster521]

@papaofboo the 40% number is an approximate average. Folks with lower earnings may receive a greater percentage of their Average Indexed Monthly Earnings (AIME). And, folks with higher earnings may receive a lower percentage of their AIME. Because the SS program uses 35 years of covered earnings indexed for inflation, a person's Primary Insurance Amount (PIA) includes approximately 30% or more due to inflation. That is one great deal for most folks. Essentially, your earnings are increased by inflation factors and you do not have to pay FICA (social security) taxes on the increased amount. It appears you are interested in some of the subjects that are posted. So, I suggest you visit the social security website which is a great source of information. You may spend hours reading all the available information which for some folks is interesting.

One concept you will find at ssa.gov is that the SS program is designed to be not your only source of income after you stop working. Gail1 has referred to this as well. You may have seen a reference to a three legged stool; namely, SS Benefits, Pension (Defined Benefit, 401 K, IRA, etc.), and Savings. If one is just receiving SS Benefits, it is difficult. Those folks have no other resources to cover inflation. Good Luck.

[GailL1]

@papawofboo 

The 40% goes back to the overall Social Security philosophy that Social Security should NOT be ones only money used for retirement.  That’s the main problem. for many, it is their one and only source of funds in retirement.

[SpringIsHereVA]

Lol Pawpaw @papawofboo , we may get ZERO for 2026 the way things are going this year 2025. Take care, Nicole  👵

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➡️[*** Papaw wrote Tuesday 4/29/25: I never seen or heard the 40% amount. Alway knew it wasn't enough but sure didn't know it was that low. I guess it stands to reason since this 2--3% increases aren't getting the job done. ***]

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[papawofboo]

Well ever since I have been on SS I've been told that the COLA is figured different for us. What I understand is the simple way of looking at it. SS goes up by x, medicare goes up y amount, that leaves you with z. Here comes rent and it goes up z+++. Now from your post that leaves us with 79,999 price increases that we cannot off set. 

This is how it goes, Oct. we are told how much we will get, Nov. they tell us how much they are taking back, Dec. we get to figure out what to do away with. Happy New Year.

[SpringIsHereVA]

Papaw @papawofboo , COLA for me is a waste of space in my OLD person's budget. As you said, rent goes up and so does OTHER bills. Then we have thousands being sent to folks this year 2025 for what the powers that are in charge SAY, are owed to them. Geez, I could sure use one of those $9,000.00 Social Security direct deposits in my Bank Account. Take care, Nicole  👵

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➡️[*** Papaw wrote: Well ever since I have been on SS I've been told that the COLA is figured different for us. What I understand is the simple way of looking at it. SS goes up by x, medicare goes up y amount, that leaves you with z. Here comes rent and it goes up z+++. Now from your post that leaves us with 79,999 price increases that we cannot off set. 

This is how it goes, Oct. we are told how much we will get, Nov. they tell us how much they are taking back, Dec. we get to figure out what to do away with. Happy New Year. ***]

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[SpringIsHereVA]

Lol Papaw @papawofboo !!!  🤣😂

➡️[*** YOU WROTE: I don't know what you floks do but I stay at home and watch flowers grow.

Take care,

Nicole  👵