Tough times are ahead as we get closer to knowing when your Social Security checks will increase in 2025. Many of us are unlikely to be happy about the increase. However, it is important to understand why this is happening and how you can make the best of the situation. The Social Security Administration, or SSA if you prefer, oversees all of the various programs that make up a broad portfolio that attempts to help Americans avoid poverty as much as possible. Given that all of this assistance is provided in monthly benefits, it is not unreasonable to expect them to be large enough to pay for basic needs while still leaving some cash for additional necessities.
It is plausible to conclude that if this is not the case, the mission of the program is lost. Therefore, adjusting the amounts provided to all beneficiaries is not only part of SSA’s mission but also a critical component of the program’s goals to adjust values for economic changes. This includes taking inflation statistics and developing a mechanism to track the trend and apply it to Social Security checks.
What is the process for determining the increase of your Social Security checks?
Conceptually, you would need to choose an inflation indicator. In this scenario, the SSA has created an index called the COLA, or Cost of Living Adjustment. The process for calculating it is to compare the different values that a price index has over time to determine the likely trend of inflation. The basic information for updating your Social Security checks comes from a consumer price index called the CPI-W, which stands for Consumer Price Index for Urban Wage Earners and Clerical Workers.
This index aggregates changes in the prices of more than 200 goods and services weighted by the preferences of families earning at least 50% of their income from wage and salary work. The CPI-W is then averaged for the third quarter of the year (July, August, and September) and compared to the previous year’s average. This is done in the second week of October and produces our COLA, which is fully implemented for all Social Security checks by next January.
Why is the current forecast not good news for your Social Security checks?
It is critical to recognize that the first issue you will encounter when reviewing the data for the increase in your Social Security checks and the anticipated COLA increase is that while it is based on recent inflation statistics, it is still a lagging indicator of how the economy is functioning. Each of the issues, whether geopolitical, catastrophic, legislative, or demographic, must occur before a noticeable change is reflected in the inflation data.
Of course, there are some clues you can look for, such as the news. However, sometimes the true impact and magnitude of an event on the inflation numbers is not known or may take months to become apparent. One such example was the impact of the COVID-19 pandemic. Even though the blunt force of this event occurred in 2020 and 2021, and the impact on inflation became apparent as it rose to 8% in 2020, the impact on the cost of living adjustment (COLA) lingered, with the largest increase not occurring until 2022, two years later.
This is significant because the latest COLA expectations are around 2.6%, which is lower than last year’s 3.2% and the lowest in the last four years. However, it is important to remember that we are still missing the final piece of the puzzle: the September CPI-W. At that time, this year’s statistic will hover around 300, with July at 308.5 and August at 308.64.
At first, this news may be discouraging, as there is still a long way to go before we can expect larger COLA increases in your Social Security checks. However, because the COLA follows inflation, the purchasing power of your money (and other assets) will not decline as much as expected, and you will not be forced to cut back on purchases as a result of the impact of unconstrained price increases on your cost of living; so there is a silver lining.