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Social Security recipients are on track to receive a cost-of-living adjustment (COLA) next year that is smaller than previously expected after inflation moderated more than expected in May.
Mary Johnson, a retired Social Security and Medicare analyst, estimated the adjustment could be about 3%, based on May inflation data, which showed the consumer price index was unchanged from the previous month and is up 3.3% from the same time last year.
Both figures are lower than expected, suggesting high inflation is loosening its grip on the U.S. economy.
INFLATION RISES 3.3% IN MAY, LESS THAN EXPECTED
The annual Social Security change is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W, from July, August and September. The CPI-W also posted a 3.3% increase in May.
In this photo illustration, a Social Security card sits alongside checks from the U.S. Treasury on Oct. 14, 2021, in Washington, D.C. (Kevin Dietsch/Getty Images / Getty Images)
Should Social Security beneficiaries see a 3% increase in their monthly checks next year, it would mark a steep decline from both 2023, when recipients saw an 8.7% bump and from 2024, when benefits rose by 3.2%.
However, it remains higher than the 2.6% average increase recorded over the past two decades.
An increase of that magnitude would raise the average retiree benefit of $1,907 by about $57.21 per month.
HOMEOWNERSHIP COSTS IN THE US SURGED 26% SINCE THE START OF 2020
Even with last year’s cost-of-living increase, many retirees say they are struggling to keep up with high inflation. Johnson suggested the CPI-W may actually be an inaccurate way of measuring where older Americans actually spend their money.
That’s because the CPI-W assumes retirees spend about two-thirds of their income on housing, food and medical costs. In reality, they spend about three-fourths of their income on those necessities.
Customers shop at a supermarket in Foster City, California, on Sept. 13, 2023. (Photo by Li Jianguo/Xinhua via Getty Images / Getty Images)
“This disparity suggests that my COLA estimate, which is based on the CPI-W, may be undercounting real senior inflation by more than 10%,” Johnson said.
This year’s 3.2% benefit increase exceeded the actual rate of inflation in March, April and May.
WHAT SKY-HIGH BORROWING COSTS MEAN FOR YOU AND YOUR MONEY
The Social Security Administration will release the final adjustment percentage in mid-October.
A shopper scans coupons in a grocery store in Washington, D.C., on May 23, 2024. (Tom Williams/CQ-Roll Call, Inc via Getty Images / Getty Images)
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Inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations.
The typical U.S. household needed to pay $227 more a month in March to purchase the same goods and services it did one year ago because of still-high inflation, according to calculations from Moody’s Analytics chief economist Mark Zandi shared with FOX Business.
Americans are paying on average $784 more each month compared with the same time two years ago and $1,069 more compared with three years ago, before the inflation crisis began.
The analysis suggests that while inflation has fallen from the highs of mid-2022, many families have yet to see material relief.
Source: Your Social Security COLA increase could be smaller than expected next year
