The latest estimate of Social Security's cost-of-living adjustment for 2025 rose to 3.2% after the government reported that April inflation was in line with economists' forecasts, new calculations showed Wednesday.

The 2025 COLA estimate has risen all year as inflation remains elevated and above the Federal Reserve's 2% target. It stood at 1.75% in January, 2.4% in February, and 3% in March.

Overall prices increased 3.4% from a year earlier, down from 3.5% in March, according to the Labor Department’s consumer price index, a gauge of goods and services costs throughout the economy. On a monthly basis, costs rose 0.3%, below the 0.4% rise the previous month.

COLA is based on the "consumer price index for urban wage earners and clerical workers," or CPI-W. That figure dipped to 3.4% from March's 3.5% but still outpaced the 3.2% COLA Social Security recipients began receiving in January. CPI-W excludes the spending patterns of retired and disabled adults, most of whom receive Medicare benefits.

"The higher inflation indicates that consumers are still experiencing an erosion in buying power," said Mary Johnson, a retired Social Security and Medicare policy analyst for the nonprofit Senior Citizens League, who still tracks the data.

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Items on which seniors spend the most money increased significantly over the past year: Hospital services rose 7.7%; transportation services soared 11.2%; shelter jumped 5.5%; and electricity climbed 5.1%, the government said.

Medicare wildcard

Expected Medicare Part B premiums for 2025 are likely to eat up most, if not all, of COLA's rise, Johnson said.

"Medicare’s Trustees estimate that the standard Part B premium for 2025 will increase at nearly double the rate of the COLA," she said.

In the Medicare Trustee report released last week, the Trustees estimated Part B premiums would climb by $10.30 a month in 2025 to $185.00. That's an increase of 5.9% from $174.70 in 2024.

COLA doesn't factor in Medicare Part B premium increases.

"Nevertheless, Part B premiums are one of the fastest growing costs in retirement, and those premiums are deducted directly from Social Security benefits," Johnson said.

How is COLA calculated?   

The Social Security Administration bases its COLA each year on average annual increases in CPI-W from July through September.

The index for urban wage earners largely reflects the broad index the Labor Department releases each month, although it differs slightly.

What was 2024's COLA?

Older adults received a 3.2% bump in their Social Security checks at the beginning of the year to help recipients keep pace with inflation. That increased the average retiree benefit by $59 a month.

Seniors fall more behind

COLA is meant to help Social Security recipients avoid a lower standard of living, but it hasn't worked in reality. Poverty has increased among Americans 65 and older, to 14.1% in 2022 from 10.7% in 2021. That increase was the largest jump among any age group, according to the latest U.S. Census Bureau data.

And with Social Security’s reserves projected to run out in 2035, things may get worse.

"Congress is painting itself into a corner on fixing Social Security’s pending insolvency," Johnson said. "Failure to act on the program in time would lead to automatic benefit cuts. Without changes to reduce costs and/or raise revenues received by the program, the Social Security Trustees estimate that all benefits would be reduced by more than 20% to match the amount of tax revenues received by the program after 2035."

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.