The Cost-of-Living Adjustment (COLA) for Social Security Is Set to Arrive in 2025. Will It Sufficient for Retirees?
Social Security is one of the largest and most important programs in the U.S. government.
The Social Security Administration (SSA) spends about $1.5 trillion every year to support 68 million Americans, 51 million of whom are retired workers.
For many retirees, Social Security payments are a crucial part of their income. Nearly 40% of retired workers depend on Social Security for at least half of their monthly income, while about 13% rely almost entirely on these payments.
This means the financial well-being of millions of retirees rests heavily on the SSA’s shoulders.
How Social Security Adjusts to Inflation
Whether Social Security makes up a major part of your retirement income or not, you’re probably curious about how inflation might affect your benefits. Will rising costs force you to cut back?
Fortunately, Social Security benefits are adjusted annually to keep up with inflation through something called the cost-of-living adjustment, or COLA. This adjustment is meant to help retirees maintain their standard of living despite rising costs.
In the early days, changes to Social Security benefits required approval from Congress, which led to frequent delays and political battles.
However, since 1975, Social Security adjustments have been automatic. Nearly every year since then, a small increase in benefits has been seen.
COLA is based on a specific measure of inflation called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The CPI-W is tracked and reported by the U.S. Bureau of Labor Statistics (BLS), which collects data monthly on prices across the economy and calculates an overall inflation rate.
With Inflation on Everyone’s Mind, Retirees Are Keen to Know This Year’s COLA
Although inflation has slowed down recently, it’s still fresh in everyone’s minds after skyrocketing during the pandemic.
In 2021 and 2022, inflation reached levels not seen in decades, which led to significant COLA increases for Social Security recipients. The adjustments in those years were 5.9% and 8.7%, respectively, the largest since the 1980s.
While these increases helped, there’s a problem: the CPI-W doesn’t reflect the spending habits of retirees. It tracks the expenses of younger, working individuals, but retirees often have different spending needs—particularly when it comes to healthcare.
Healthcare costs tend to rise faster than average inflation, and because they’re a larger part of retirees’ budgets, this can lead to a loss of purchasing power.
The Senior Citizens League (TSCL), a group that advocates for older Americans, recently found that retirees have lost 20% of their Social Security buying power since 2010, despite the yearly COLA adjustments.
What to Expect for the 2025 COLA
If TSCL’s findings are accurate, it’s unlikely that the 2025 COLA will make up for the lost buying power.
Still, any increase is better than none. So when will we find out what the 2025 adjustment will be?
The SSA announces the annual COLA in October. It’s based on CPI-W numbers from July, August, and September.
Since the numbers for two of those months have already been released, experts can estimate the adjustment. TSCL predicts that the COLA for 2025 will be around 2.5%, a decrease from last year’s 3.2%.
While the official number is coming soon, the final COLA is expected to be similar to this estimate.
A Social Security Bonus You May Not Know About
Many Americans are behind on their retirement savings, but there’s a little-known Social Security strategy that could help boost your benefits.
By following a few simple steps, you could increase your annual payments by as much as $22,924! Learning how to maximize your Social Security benefits could give you the confidence to retire with peace of mind.