Social Security COLA may drop, already 'not enough' for seniors

According to the Senior Citizens League, the Social Security cost-of-living-adjustment (COLA) for 2025 may be reduced to 2.4%, down from 2024's 3.2%. The forecast is based on recent inflation data, though seniors report that even this year's bump did not go far enough.

Yahoo Finance Senior Columnist Kerry Hannon joins the Live show to break down the estimate and how it could impact retirees.

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Editor's note: This article was written by Nicholas Jacobino

Video Transcript

RACHELLE AKUFFO: Retired Americans may be facing a smaller Social Security cost of living adjustment or COLA for next year. For more on this, let's get to Yahoo Finance's senior columnist, Kerry Hannon. So Kerry, why are we seeing this?

KERRY HANNON: Well, absolutely, Rachelle. What happens is each year, the Social Security Administration adjust Social Security, the beneficiaries' check each month by the inflation rate. So it's in order to help people stay abreast of rising costs. But it's delayed from one year, it pushes into the next year.

So this is early in the game. But what they do is we start-- in this week, we saw the new Inflation numbers, and so people started throwing out estimates about, hey, what might it look like for the retirees' paychecks, so to speak, in 2025. And right now, it looks like it might be around 2.4% according to the Senior Citizens League and some other experts I talked to in that range.

And again, as you know, it was 3.2% this year. This isn't a huge amount of money. I mean, if it was 2.4%, it would add roughly $46 to the monthly paycheck. This year, the 3.2% added around $59. So inflation is abating. So this is good news. But it is there.

Now, the problem is that seniors say that even today, this year's 3.2% bump up really didn't help them with a lot of the costs that they did have because as we see with inflation, there are still those little things that pop up that really are higher than other things. And the things that really strain senior budgets are things like housing and health care and even cars and car insurance, transportation. So these are things that are still relatively high, and so people are concerned that it may not be enough.

AKIKO FUJITO: Kerry, how are those cost of living adjustments calculated?

KERRY HANNON: Yeah, thanks for asking that. So I said it's a little bit early. And so what it is they take the inflation data from July from August and from September, and they average that together and they compare it to the previous year. That's how they come up with the number. they'll. Announce it in mid-October, and that will go into effect January 1, 2025. So we're early to the game here.

But the one thing that's concerning is that the aspect that they look at in the inflation index doesn't weigh health care as much as seniors say it is costing them. So the index they use assumes a 7% of retirees' incomes go to health care, when in fact, and seniors tell, the Senior Citizens League that-- over 2/3 of them said that they are spending closer to 30% of their income on health care. So there we have a bit of a disconnect. So it has trouble actually keeping up with the inflation seniors are feeling in their pocketbooks.

RACHELLE AKUFFO: And it makes sense, especially when it comes to health care. You would think there would be a bit more weight in that there to make up for that cost. As you mentioned though, it's still early days. I appreciate you. As always, our very own Kerry Hannon.