Here’s the Latest Estimate for the 2025 Social Security COLA – And When We’ll Know for Sure

hey everybody we are going to talk about the social security cost of living adjustment today where it stands now when we'll know the finalized answer and what it will mean to you before we dive in please take a minute and check out the link you see on your screen full.com Frankle get a message from my sponsor the mle fo it's the best way to support this work I'm doing on YouTube and please be sure to click my uh follow on my channel if you don't already subscribe and keep up with all of my latest Social Security content and much more so let's Dive Right In I want to share my screen for a second all right so here's the the short version the current projected Social Security cost of living adjustment that you'll see reflected in 20125 is 2.57% and that is based on both recent inflation data and current and future expectations as we'll get to in a minute this is down that should say down sorry for the typo but this is down from the prior expectation of 2.63% which doesn't matter that much as we'll see on the next slide and actual cost of living adjustment is based on third quarter inflation and we'll unpack that in just a minute as well so here's why I say it doesn't matter that it went down from 2.63 to 2.57% because as you can see here these are the Social Security cost of living adjustments for a whole bunch of recent years including last year's which was 3.2 the one before that which was 8.7 and so on all of those are to one decimal point and both the old estimate the 2.63 and the recent one the 2.57 they both round to a 2.6% jump in the social in your social security benefit so as long as it stays within you know you know 0 five you know 05 of that uh 2.6% range that's what it should be so let's get into a little bit of what this will mean to you so as of August 2024 the average retired worker gets 1 92048 from Social Security this is straight from the Social Security Administration um the average survivors benefit um that could be either someone whose spouse passed away or someone whose parent passed away um is a little over $1,500 a month and the average spousal benefit that is a benefit that you draw on your spouse's work record um while they're still alive is a little under $910 so you can see on the chart with a 2.6% cost of living adjustment assuming the current estimate stands the average retired worker social security benefit will increase by about $50 in 2025 now technically this is the 2024 Social Security cost of living adjustment that goes into effect in December but since Social Security is paid one month in a you'll actually see this in the direct deposit you receive in January 2025 so that's why I refer to this as the January 2025 cost of living adjustment so when will we know for sure so the actual cost of living adjustment will be based on third quarter inflation numbers that's each month not just the overall third quarter so July August and September they compare those months to the the corresponding months in 2023 and that's how we they will determine this year's cost of living adjustment so we already know July's actual inflation data that's been released that was released in uh mid August and that pointed to a 2.9% increase in the CPI now if they're only expecting about a 2.6% cost of living adjustment that tells me that they expect inflation to soften a little bit in August and September obviously August is already over but we haven't seen the data yet um so we know July's actually inflation data we do not know the actual CPI data for either August or September as of this recording which I'm recording this on September 9th I'm not sure exactly when you're going to see it uh if you see it right when I publish it uh this the August numbers might not be out yet but if you see it a little bit later they might be um so here's kind of the important dates you need to know August CPI data that's Consumer Price Index that's the measure of inflation that this is based on is scheduled to be released on September 11th at which is a Thursday at 8:30 a.m. eastern time the September data which is kind of the final piece of the puzzle is expected to be reported at that same time 8:30 in the morning on October 10th so once we have all three numbers the July data the August data and the September data the Social Security Administration is likely to announce the official Social Security cost of living adjustment very soon afterwards now I mean it's not going to be maybe the same minute but we can do some math and pretty much figure it out as soon as the data comes out on October 10th so stay tuned for another video I'm going to try to do it very timely um and put it up very quickly um so last thing let's look at some of the information that we know about what the cost of living adjustments could be Beyond 2025 so the one-year expectation of inflation is about 3% so it's actually possible we can get a higher cost of living adjustment for the following year in uh that will go into effect in 2026 um the average inflation rate for the next three years this is from a Federal Reserve survey is expected to be 2.3% so lower inflation expectations over the next three years but then the five-year expectation is kind of interesting at 2.8% so essentially what these three numbers mean is that inflation's expected to be about 3% for the next year then you know go down for the next two years or so but then start to rise back up after that but very tame the Federal Reserve Target is 2% inflation um so between two and 3% over the next five years would be pretty stable um we want to avoid the inflation that we saw in 2022 it was kind of nice for Social Security beneficiaries in a way to get an 88.7% cost of living adjustment go into effect in 2023 but we don't want that every year that means prices are going up for every body um we want price stability and stability is generally defined by about 2% inflation um and one other thing that uh all Social Security beneficiaries should know is that yes you get inflation adjustments every year but it could be the wrong kind of inflation under current law the CPI W which is the Consumer Price Index for urban wage earners uh is used to determine the annual cost of living adjustment a better metric would probably be the CPI which for obvious reasons is called the Consumer Price Index for the elderly that places more emphasis on expenses that affect seniors such as Health Care and housing the average senior spends more of their income on healthare as a percentage than the overall population and that one's pretty obvious but on housing seniors that either don't own their homes or have a mortgage they tend to spend more money not just as a dollar amount but as a percentage of their income compared to the rest of the population so things like rent increases um tend to affect seniors more than than the overall population and here's just the statistics on that and then I'll wrap this up so over the past you know two decades the CP would have resulted in higher cost of living adjustments for Social Security beneficiaries if that was used um from the period from 1982 to 2011 for example the CPE grew at an annualized rate of 3.1% versus 2.9% for the CPI W in 2024 um you know the cost of living adjustment that went into effect in 2024 that is the CPE would have given a 4% cost of living adjustment versus the 3.2% that seniors actually got um and the CP would have resulted in higher cost of living adjustments in seven out of the past 10 years so there's a solid argument to be made that the wrong kind of of uh CPI inflation that is being used hopefully Congress will address that at some point uh but it's important for seniors to be aware of that that you know don't necessarily throw a party when you get a cost of living adjustment because it might not help exactly keep up with inflation it's definitely good and it's protected against inflation but maybe not 100% so hopefully you enjoyed that please leave me some comments I will do my best to respond to anything you ask individually and thanks for listening I want to thank the mutle fool for SP sponsoring this video The mle Fool is a company that provides investing insight and stock recommendations for investors of all skill sets and risk levels you all know how much I love researching new stocks and trying to find the next best investment so I'm proud to SP partner with the mle fool to bring you 10 Stock picks from the popular product stock advisor stock advisor has beaten the market by nearly five times so go to fool.com Frankle to get your 10 Stock picks now the mle full stock advisor returns are 767 as of July 5th 2024 and are measured against the S&P 500 returns of 163% as of July 5th 20124