The anticipated adjustment for Social Security benefits, known as the cost-of-living adjustment (COLA), is expected to fall to 2.6% for 2025. This change follows a report indicating that inflation slowed down slightly in July compared to June, according to new calculations released on Wednesday.

Previously, the COLA estimate for 2025 was set at 2.7% in July.

A 2.6% COLA would reflect the average adjustments made over the past two decades, marking the lowest figure since 2021, as noted by Mary Johnson, a retired analyst from the non-profit organization Senior Citizens League, which closely monitors COLA estimates.

The consumer price index (CPI), which serves as a broad indicator for the prices of goods and services, showed a yearly increase of 2.9% for July, according to a government report on Thursday. This is a decline from June’s 3.0%, the lowest since March 2021, aligning with forecasts made by Barron’s magazine. Excluding the more volatile food and energy sectors, the core inflation rate rose by 3.2%, slightly down from 3.3% in June, but both figures remain above the Federal Reserve’s target of 2%.

The COLA calculation is derived from the “Consumer Price Index for Urban Wage Earners and Clerical Workers,” or CPI-W. This figure’s increase corresponds to July’s inflation figures, remaining at 2.9%, and is stagnant compared to June, well below the 3.2% COLA that Social Security beneficiaries began receiving in January.

A decrease in COLA could negatively impact seniors, particularly as their most essential expenses continue to rise at a pace that exceeds their COLA increases, according to Johnson.

For instance, rents have surged by 5.1% over the past year, electricity costs are up 4.9%, hospital services have risen 6.1%, and transportation services have escalated by 8.8%.

A recent survey by Allianz Life’s 2024 Annual Retirement Study, published in April, revealed nearly two-thirds of Americans are more concerned about depleting their finances than facing death. This figure rose from 57% in 2022, primarily driven by inflation concerns (43%), inadequate Social Security support (24%), and high tax burdens (22%).

What about Trump’s Taxation Proposal on Social Security Benefits?

“Former President Donald Trump’s proposal to eliminate taxes on Social Security benefits could appeal to many older voters, yet it risks making Social Security financially unstable two years earlier than projected,” stated Johnson.

The Social Security Board of Trustees predicts that the program may run out of funds by 2033. If this occurs, all Social Security benefits would face a reduction of 21% as payouts would align with the revenues collected.

“Vague political assertions regarding Social Security benefits are ineffective,” Johnson emphasized. “Voters need clarity on the sources of funding for these benefits.”

Johnson, in her role as a policy analyst, suggests increasing the payroll tax cap for higher-income earners and making inflation adjustments to the income thresholds at which Social Security benefits are taxed, thereby reducing the number of taxed beneficiaries. The current thresholds have never adjusted for inflation, leading to a growing number of beneficiaries facing taxes on their Social Security.

How is COLA Calculated?

The Social Security Administration determines the annual COLA based on the average changes in the consumer price index for urban wage earners and clerical workers (CPI-W) from July to September. Consequently, inflation data from July is particularly crucial for future adjustments.

The urban wage earners index closely reflects the overall consumer price index published monthly by the Labor Department, although there may be slight variations. Last month, the consumer price index rose by 2.9%, and the urban wage earners index mirrored this inflation figure.

What was the COLA for 2024?

This year, older adults experienced a 3.2% increase in their Social Security payments at the start of the year to help them cope with inflation. This raised the average monthly benefit for retirees by $59.