Retirees don't have much longer to wait to find out how much larger their Social Security checks will be next year. The Social Security Administration will announce the 2025 cost-of-living adjustment (COLA) in mid-October.
However, monthly inflation data can give a sneak peek at what's likely on the way. Based on the latest numbers, I think retirees should brace themselves for bad news.
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A lower Social Security increase
As things stand now, retirees (and all other Social Security beneficiaries, for that matter) are on track to receive a lower benefits increase than they enjoyed this year. Keep in mind that the final COLA percentage is calculated by comparing inflation numbers from the third quarters of 2023 and 2024. However, unless there's a surge in inflation, you can probably count on a smaller COLA for next year.
Inflation (as measured by the Consumer Price Index, or CPI) fell from 3.4% in April to 3.3% in May. But that's not the inflation metric the Social Security Administration (SSA) uses to calculate the annual COLA. Instead, SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W rose 0.1% month-over-month in May.
Before you get too excited, the CPI-W trend still points to a lower Social Security increase next year. The Senior Citizens League (TSCL), a nonpartisan organization that advocates for seniors, projects the 2025 COLA will be 2.57% after reviewing the May inflation data. That's significantly lower than this year's 3.2% increase.
Social Security and Medicare policy analyst Mary Johnson, who retired from TSCL, uses a different approach to predict the COLA. Johnson expects a Social Security increase of 3%. While not as steep of a decline as the TSCL estimate, it still reflects a lower COLA for next year.
The worse part
But the likelihood of a lower Social Security increase isn't the bad news I have in mind. The real bad news is that many of the costs that impact retirees more than younger Americans are rising more than the overall inflation rate.
For example, hospital services costs soared 7.2% year over year in May. Hospitalization rates tend to be much higher for individuals aged 65 and older than other age groups. Older adults also make up more than 70% of hospital admissions from emergency rooms.
If you've got an older vehicle that's more likely to need work, you'd better buckle up. Motor vehicle maintenance and repair costs also surged 7.2% higher year over year in May.
Higher energy costs also often hit seniors the hardest. Unfortunately, the cost of electricity jumped 5.9% year over year in May.
Some research indicates that retirees eat out more often than younger Americans. If you like to eat out, you've almost certainly already experienced some sticker shock. In May, the costs of food away from home rose 4% year over year -- well above the overall inflation rate.
What can retirees do?
It's possible that the areas where higher costs hurt retirees the most could experience more moderation of inflation in the coming months. However, the best strategy is probably to expect the best but prepare for the worst.
Retirees who haven't already begun carefully watching their expenses should start immediately. Cutting out some high-cost items that aren't necessities can free up money in your budget for other, more important things.
Take any prescription medications when you're supposed to. Don't skip scheduled healthcare visits. Exercise regularly. Be careful so that you avoid falling. Remember the adage: An ounce of prevention is worth a pound of cure.
You'll have to wait to know exactly what your Social Security monthly benefit will be for 2025. It's not too soon, though, to take steps to ensure that whatever amount you receive goes further.
