A recent prediction forecasts a notable uptick in the Cost of Living Adjustment (COLA) for 2025, potentially offering Social Security recipients a reprieve with higher monthly payments.
Social Security benefits undergo annual adjustments determined by the COLA, which relies on the consumer price index for urban wage earners and clerical workers.
The latest forecast for 2025 stands at 3 percent, buoyed by unexpectedly high inflation figures disclosed this week. Previous estimates earlier in the year pegged the COLA at a more modest 1.75 to 2.4 percent for January and February.
This projected increase comes in response to a 3.5 percent surge in the consumer price index for March compared to the preceding year, prompting the government to consider augmenting payments to reflect the inflationary pressures seniors encounter across various expenditures, spanning from housing to groceries.
However, financial analysts caution seniors against excessive jubilation over the projected 3 percent escalation.
Seniors grapple with pronounced inflationary strains, particularly concerning housing, healthcare, and transportation expenses.
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As per the Bureau of Labor Statistics, shelter costs surged by 5.7 percent year-on-year, while hospital service charges skyrocketed by 7.5 percent. Transportation expenses witnessed an even steeper ascent, soaring by 10.7 percent.
In 2024, seniors witnessed a 3.2 percent hike in Social Security benefits owing to inflation, translating to a monthly boost of approximately $50 to $60. This pales in comparison to the substantial 8.7 percent surge observed in 2023.
Despite these incremental increases, poverty rates among individuals aged 65 and above have exhibited an upward trajectory. The U.S. Census Bureau projects that poverty rates within this demographic escalated from 10.7 percent in 2021 to 14.1 percent in 2022.
However, the COLA’s upward adjustments in Social Security payments carry a downside. Many seniors find themselves grappling with tax obligations on their benefits this year, a stark departure from previous years where such financial encumbrances were avoidable.
Kevin Thompson, a finance expert and the founder/CEO of 9i Capital Group, highlighted the potential adverse impact, noting, “This may be a hard pill, no pun intended, to swallow seeing the net effect be negative on your actual take home.”
Experts caution that persistent unaffordability in healthcare and housing sectors might mitigate the benefits of the COLA increase in the coming year, with many seniors still struggling to cover their basic living expenses.
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