Even though inflation is low, millions of retirees are still worried about their Social Security payments. This is mostly because of the lower cost of living adjustment (COLA) increase and the fact that the Social Security trust funds could run out before 2033.
The Federal Reserve System has also recently said that to deal with the shortage issue, Social Security payments could be cut. That is, this means that the benefits of more than 64 million people could be cut so that the Social Security system can keep paying out benefits.
At the moment, Social Security payments give retirees between $1,900 and $4,873. These benefits keep going up every year because of the annual COLA increase. The Bureau of Labor Statistics usually figures out the cost of living adjustment (COLA).
They do this by looking at the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and figuring out how much the COLA will go up based on past inflation patterns.
It is important to remember that the COLA percentage will be affected directly by the change in inflation. For example, if inflation goes up, the annual boost will also go up. So, this change in the cost of living is meant to help seniors and other beneficiaries keep their purchasing power.
Millions of retirees have received warnings from the FED regarding the future of Social Security payments
In September, the Federal Reserve lowered the federal funds rate by 50 basis points, bringing it down to a range of 4.75% to 5%. This was the first time in four years that the rate had been lowered. The move shows that the central bank is sure that inflation is now under control.
The Federal Reserve’s efforts to keep inflation in check are like Social Security payments for the economy as a whole. However, retirees who depend on Social Security may be let down. So, if inflation goes down, the SSA might not have to raise payments as much. This could make it harder for retirees to keep up with the rising cost of living.
Even though it doesn’t have a direct effect on the 2025 COLA, this rate drop shows that the economy has changed, which is what caused Social Security payments to go up recently. We can guess the 2025 COLA based on data from the CPI-W for two months, July and August.
CBS News says that if these numbers stay the same, the COLA in 2025 will probably be around 2.6%, which is a big drop from previous years. The CPI-W went up 2.87 percent in July but only 2.35 percent in August.
If inflation keeps going down, the final COLA for 2025 may not be more than 2.6% in September. One of the main reasons for this trend is the drop in the price of energy, especially oil, which is now below $70 a barrel, its lowest level in almost a year.
The chance of a higher cost of living adjustment (COLA) is even lower now that energy prices are going down. This is because energy prices are a big part of the overall inflation rate and show that annual inflation will continue to go down.
The Federal Reserve has also said that inflation is likely to keep going down in the future, with a long-term goal of 2%. We expect inflation to reach 2.3% by the end of 2024 and then drop to 2.1% by the end of 2025. This means that the COLA for 2026 might be 2.2% instead of the 2.6% that was planned for 2025.
People who are retired will need to set aside some cash for these smaller COLA changes. The numbers come from past economic data, so they might not accurately show the money problems retirees are currently facing, like the rising costs of things like food and electricity. This is true even though the COLA increases are meant to help retirees keep up with inflation.
Will lower interest rates eventually benefit retirees’ Social Security payments?
Even though it’s likely that Social Security checks will go up less, one benefit of the Federal Reserve’s interest rate cuts could be lower costs of borrowing money. If you are retired and still owe money on mortgages or car loans, lower interest rates may help you out financially.
Lower interest rates on loans could partially make up for lower COLA adjustments, giving retirees more financial freedom.
Also, the overall drop in inflation may help seniors keep their spending stable, even though the COLA is mostly a reactionary adjustment based on past inflation. Since inflation is lower now, the cost of living may not go up as much for retirees as it did in the past.
