In 2025, the cost-of-living adjustment for Social Security may be lower, as shown by these charts.

• Many retirees are still feeling the impact of higher prices.
• Yet data points to a lower Social Security cost-of-living adjustment in 2025.
• Here's the most recent estimate based on the latest price movements.

Retirees are still feeling the impact of higher prices.

The Social Security cost-of-living adjustment, or COLA, may be lower next year, providing only one buffer for the effects of inflation.

According to Mary Johnson, an independent Social Security and Medicare policy analyst, the Social Security COLA for 2025 might be 3% as the rate of inflation moderates.

The estimated increase in benefits for more than 66 million beneficiaries in January was lower than the 3.2% boost seen by record 8.7% COLA beneficiaries in 2023 and the 5.9% COLA that took effect in 2022 due to record-high inflation.

How the Social Security COLA is calculated

The CPI-W is used to make annual adjustments.

The Social Security Administration determines the Cost of Living Adjustment (COLA) based on the percentage increase in the third quarter CPI-W data from the previous year. If there is no increase, there is no COLA.

The Social Security COLA estimate may be subject to change due to it being early in the year.

Why early COLA estimates for 2025 are lower

Examining the most recent CPI-W data reveals the reason for the decline in retirees' recent record-high increase.

Certain categories experienced a significant decrease in prices compared to two years ago, with fuel oil seeing a 35.3% decline, airline fares dropping 19.4%, and gasoline experiencing a 17.7% decline as of May.

'Undercounting real senior inflation'

According to the Center for Retirement Research at Boston College, many retirees dealt with inflation by making changes, including reducing their savings or using their existing assets.

Laura Quinby, senior research economist at the Center for Retirement Research, previously stated on bizfocushub.com that doing that would result in a significant impact on their future wealth.

According to Quinby, the impact of Social Security's cost-of-living adjustments varies for individuals depending on their individual expenses and location.

The U.S. stock market is experiencing a 'concentration' issue. Americans are having a hard time getting out of a 'vibecession'. 'Super savers' in the U.S. have the largest 401(k) balances.

According to Johnson, some experts believe that the CPI-W does not accurately measure retiree spending because it assumes that older adults spend approximately 66% of their income on housing, food, and medical costs, while in reality, they actually spend about 75% of their income on these expenses.

Johnson stated that the difference implies that his COLA estimate, which relies on the CPI-W, might be underestimating actual senior inflation by more than 10%.

The latest CPI-W indicates where inflation is decreasing and increasing, which could potentially impact the COLA for the upcoming year.