There’s big news about the 2025 COLA from Social Security. Here’s what it means for you

The elders had an important day on August 14. The Bureau of Labor Statistics has released updated information on the Consumer Price Index for Urban Wage and Service Workers (CPI-W). The CPI-W measures the cost of a basket of goods and services, including things like food, housing and healthcare.

For retirees who don’t know, the CPI-W data is extremely important because this data is used to determine whether there will be an increase in Social Security benefits and, if so, how much the benefits will increase. Here’s what retirees should know about July’s data and why it will have such a big effect on their financial future.

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This data helps determine whether retirees will receive a raise

Retirees should pay close attention to the CPI-W numbers that were released in August because of how the Social Security COLA is calculated. COLA stands for cost of living adjustment. These adjustments occur automatically most years to ensure that inflation does not reduce the purchasing power of Social Security over time.

Under Social Security rules, the CPI-W data from the third quarter of the year is compared to the CPI-W data from the same time period the previous year to see if there should be an increase and to see how much it should either. Since July is in Q3 and there was CPI-W data from July that was released on August 14th, this data point is the first this year that will be used when calculating the increase in Social Security benefits for 2025.

Retirees will have to wait for the August and September CPI-W data to be released, and then the official COLA will be announced in October. However, while July’s CPI-W number is only one of three readings used to determine benefit increases, it is the first in the relevant time period that is available.

Additionally, by comparing July’s CPI-W numbers to those that came out earlier this year, it’s possible to spot trends that shed more light on whether a big or small hike is ahead.

What does the July CPI-W data mean for your COLA?

According to the Bureau of Labor Statistics, July CPI-W figures show that there was a 2.9% year-over-year price increase. This is slightly down from the 3% year-over-year increase that was reported in June and the 3.3% increase reported in May. It’s actually the smallest annual increase reported since March 2021.

If the 2.9% number were to hold and both August and September showed the same year-over-year increase, then retirees would receive a 2.9% increase in 2025. That would be the smallest increase in benefits from 2021. Here is how the increases for the last years looked:

• January 2021: 1.3%
• January 2022: 5.9%
• January 2023: 8.7%
• January 2024: 3.2%

However, we can see from the May, June and July data that inflation appears to be trending downward (even though the May and June figures are not included in the formula, they can be useful to show changes in inflation rates over time) . As evidence suggests inflation is cooling, it is highly likely that the COLA will end up below 2.9% if August and September continue to show smaller price increases.

The next release of CPI-W data with August numbers will be available on September 11. Retirees should pay attention to this second data point to get a clearer idea of ​​their growth trend. Finally, September’s figures will be available on October 10, so it won’t be long before pensioners finally get the answer to how big their increase will be in 2025.