Seniors might have concerns after another smaller increase has been predicted for Social Security’s cost-of-living adjustment (COLA).
Social Security benefits support seniors during retirement as well as those living with disabilities across America.
Every year, benefits change slightly based on the COLA, which is meant to alter Social Security payments based on the inflation Americans face on everything from groceries, housing and health care.
For next year, The Senior Citizens League (TSCL) released its new prediction for the COLA, saying benefits would likely rise just 2.5 percent.
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That’s yet another drop based on the consumer price index (CPI). In July, the organization predicted a 2.63 percent increase. In August, that estimate had already fallen to 2.57 percent.
“We’ve had so many COLA predictions in recent months that have sided with higher estimates because of continued pricing increases due to inflation,” Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek. “However, recent data has shown that inflation is starting to cool on some items, and this will have a ripple effect in the coming months.”
If the TSCL prediction is accurate, seniors would face the lowest COLA since 2021, when the adjustment was set at just 1.3 percent.
If the 2.5 percent COLA is announced by the government next month, seniors would see their monthly benefits rise by an average of just $48, bringing the average monthly payment to $1,920.
The lower COLA could be a shock to the system for beneficiaries who have become accustomed to higher COLAs in recent years.
“The COLA prediction likely aligns with CPI trends, but many seniors will feel it’s insufficient due to recency bias,” Kevin Thompson, finance expert and founder/CEO of 9i Capital Group, told Newsweek.
“Healthcare costs and rising grocery prices are far outpacing what the COLA will cover. The reality is that while the rate of inflation may be slowing, costs for essentials like food and services remain high.”
Last year, the COLA reached 8.7 percent before plummeting to 3.2 percent this year. But because inflation overall has since dipped, a lower COLA is anticipated for benefits next year.
“This year’s COLA will be important because many seniors said it didn’t keep up with their real-life expenses last year,” TSCL said in an earlier report.
In a TSCL survey of 1,550 participants, 69 percent said their household costs surpassed what the COLA provided last year, indicating many seniors might feel cash-strapped as a result of the lower COLA next year.
“Ultimately, seniors are going to see an increase to help with the added demands they’re seeing in terms of purchasing power,” Beene said. “While the amount may not be as high as once thought, it will still be reflective of the prices they’re encountering on their expenses.”
Some analysts have suggested the COLA should be based on the CPI for the elderly as opposed to the index for urban wage-earners and clerical workers.
“Whether the annual COLA is appropriate for a specific retiree to ensure equal purchasing power as the prior year is highly specific to the life situation of the individual retiree, both in terms of expenses and other sources of income,” Jonathan Price, national retirement practice leader at employee benefits consulting firm Segal, previously told Newsweek.
