Your Social Security COLA increase could be smaller than expected next year

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. 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. 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. 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. “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. The Social Security Administration will release the final adjustment percentage in mid-October. 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.