hey everyone welcome back to retirement Savvy we're diving deep into a topic that affects millions of Americans the projected cost of living adjustment or Cola for 2025 we've got some fresh August updates and I'll break down how it's calculated what it means for your retirement and some key factors to watch so grab your coffee and let's get into it first things first let's recap what cola is and why it matters the cost of living adjustment is an annual increase in Social Security benefits designed to help recipients keep up with inflation it's a crucial Lifeline for many retirees ensuring that their benefits don't lose purchasing power over time now I know what you're thinking Alex it's only August 2024 how can we be talking about 2025 already well that's the beauty of economic projections folks while the official C for 2025 won't be announced until October 2024 we can make educated guesses based on current trends and data let's look at some recent history in 2023 we saw a massive 88.7% Cola one of the largest in decades driven by high inflation 2024 brought us back down to earth with a more modest 3.2% increase so what's on the horizon for 2025 according to the latest data from the Bureau of Labor Statistics inflation has been cooling off in recent months the Consumer Price Index for urban wage earners and clerical workers or CPI W which is the specific measure used to calculate Cola has shown a gradual decline and year-over-year increases based on the trends we're seeing in projections from various economic analysts the early estimate for the 2025 Cola is hovering around 2.5 5% to 3% shall we the Social Security Administration takes the average CPI W for the third quarter of the current year and Compares it to the average from the third quarter of the previous year the percentage increase between these two numbers becomes the cola for the following year for example if the average CPI W for Q3 2024 is 300 and it was 292 for Q3 2023 we'd see a cola of about 2.7% for 2025 3292 292 equal 0.274 or 2.74% now I can hear some of you saying but Alex 2.5% to 3% seems low compared to what we've seen recently and you're not wrong but remember Cola is meant to keep Pace with inflation not outpace it if inflation is in indeed cooling off we should expect smaller colas but here's where things get really interesting while a lower Cola might seem disappointing at first glance it actually reflects a more stable economic environment lower inflation means your existing benefits have more purchasing power even if the year-over-year increase is smaller I recently spoke with Dr Emily Chen a renowned Economist specializing in retirement issues here's what she had to say while retirees always hope for larger colas we need to look at the bigger picture a more modest Cola often indicates a healthier economic environment what's crucial is that the adjustment accurately reflects the real world expenses senior's face Dr Chen raises an excellent point the CPI W which is used to calculate Cola doesn't always perfectly align with the spending patterns of retirees for instance healthcare costs a significant expense for many seniors often rise faster than General inflation this brings us to an important debate in the world of Social Security should we switch to a different index for calculating Cola some Advocates argue for using the CPE or consumer price index for the elderly which gives more weight to expenses common among older Americans according to the latest trustees report the combined Social Security trust fund funds are projected to be depleted by 2034 now this doesn't mean Social Security will disappear incoming payroll taxes would still cover about 80% of scheduled benefits but it does highlight the need for reform to ensure full benefits can be paid in the future this uncertainty adds another layer of complexity to Cola projections any major changes to the Social Security system could affect how colas are calculated or applied in the future now I know we've thrown a lot of numbers and projections at you but here's what it all means for your retirement planning stay flexible while early projections give us a general idea be prepared for the actual Cola to differ build some wiggle room into your budget focus on the big picture don't get too caught up in year-to-year Cola changes instead ensure your overall retirement strategy can withstand various economic scenarios consider other income sources while Social Security is important it shouldn't be your only retirement income diversify with savings Investments and possibly part-time work keep an eye on health care costs as we mentioned these often outpace General inflation factor in potential increases when planning your retirement budget stay informed keep up with economic Trends and Social Security news the more you know the better prepared you'll be now let's address some common questions have been getting from viewers Q if inflation picks up again in the next few months could we see a higher Cola for 2025 a absolutely remember the final calculation is based on Q3 data a sudden spike in inflation could certainly lead to a larger adjustment Q do colas apply to all types of social security benefit a yes colas apply to retirement disability and survivor benefits they also affect SSI supplemental security income payments Q is there a cap on how high the Cola can be a interestingly there's no official cap the cola simply reflects the increase in the CPW whatever that may be before we wrap up let's quickly touch on some key dates to keep in mind September 2024 the final month of data used in the cola calculation mid October 2024 the official 2025 Cola announcement from the Social Security Administration January 2025 the new Cola takes effect increasing benefit payments and there you have it folks everything you need to know about the projected 2025 Cola as of August 2024 remember while these projections give us a good starting point A lot can change in the coming months stay tuned to this channel for updates as we get closer to the official announcement if you found this video helpful please give it a thumbs up and consider subscribing for more retirement and Social Security content and hey let me know in the comments how are you factoring Cola into your retirement planning thanks for watching and I'll see you in the next video