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As we move past July and into the second half of August, anticipation builds around the upcoming announcement from President Biden regarding the 2025 pay raise.
For federal employees and retirees, this announcement, expected later this month, will set the stage for next year's Cost-of-Living Adjustment (COLA), a key factor in determining income adjustments for 2025.
2025 COLA projections has slipped
The most recent estimate for the 2025 Social Security COLA has dipped slightly to 2.6%, down from the previous forecast of 2.7%.
This adjustment follows the release of the July inflation data, which showed a cooling in the inflation rate compared to June.
Specifically, the consumer price index (CPI), a measure of the cost of goods and services, rose by 2.9% in July, down from 3.0% in June.
The core inflation rate, which excludes volatile food and energy prices, also showed a slight decrease, settling at 3.2%.
If the 2.6% COLA projection holds, it would represent a return to the average COLA rates seen over the past two decades.
However, it would also mark the lowest increase since 2021, reflecting the easing inflation pressures.
While a 2.6% adjustment might sound reasonable, it could still pose challenges for seniors who face rising costs in essential areas like rent, electricity, hospital services, and transportation, all of which have outpaced the average inflation rate.
How is COLA calculated?
The COLA is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which mirrors the broader CPI but is specifically tailored to reflect the spending habits of this demographic.
With the CPI-W holding steady at a 2.9% increase in July, the final COLA figure will hinge on the inflation data for the next two months.
It's important to note that even with a modest COLA increase, many Americans continue to feel the pinch of inflation.
A recent study highlighted that nearly two-thirds of Americans worry more about running out of money than about death itself, with inflation being a major contributing factor.
As we await the final COLA determination for 2025, it's clear that the adjustment will play a crucial role in helping retirees and federal employees navigate the ongoing economic challenges.