In 2025, Social Security recipients are expected to see a modest increase in their benefits, with a projected 2.5% cost-of-living adjustment (COLA). This translates to an average increase of approximately $48 per month for retirees.
While any boost in income may seem like good news, the smaller-than-expected COLA is sparking concerns among retirees about their long-term financial stability. Here’s why the adjustment is drawing mixed reactions.
The 2025 COLA Increase – What to Expect
The Social Security Administration (SSA) calculates the annual COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
This metric tracks inflation trends by comparing data from the third quarter of the current year with that of the previous year. In 2024, the COLA was 3.2%, but projections for 2025 suggest a decrease to around 2.5% or 2.6%.
This lower rate of increase is attributed to moderate inflation trends observed throughout the year. For example, the CPI-W grew by 2.9% in July and 2.4% in August, indicating a slowdown in inflation.
The final COLA percentage will be announced by the SSA in October 2024 after the release of September’s inflation data.
Impact on Social Security Payments
So, what does this 2.5% COLA increase mean for Social Security recipients? Here’s a look at how benefits may change:
- Retired Workers: The average monthly benefit of $1,920 in August 2024 may rise by $48 to approximately $1,968.
- Couples Receiving Benefits Jointly: Joint payments could increase by about $96, reaching approximately $3,937 from the previous $3,840.
- Social Security Disability Insurance (SSDI) Recipients: SSDI beneficiaries may see an average monthly increase of $38.50, raising payments from $1,540 to roughly $1,578.
- Survivor Benefits: Widows and widowers eligible for survivor benefits may experience a $45 boost, bringing their monthly payment from $1,784 to about $1,829.
While these estimates provide a general idea, individual benefits may vary based on your unique circumstances and the final COLA percentage announced by the SSA.
Retiree Concerns About the Smaller COLA
Why are retirees worried about a seemingly positive increase? It all boils down to how COLA interacts with inflation and rising costs. The purpose of the COLA is to ensure that Social Security payments keep pace with inflation, preserving the purchasing power of beneficiaries.
However, with a lower COLA percentage for 2025, there’s concern that benefits may not keep up with the real costs faced by retirees, such as:
- Healthcare Expenses: Medical costs often outpace general inflation, meaning a smaller COLA may not cover rising healthcare expenses.
- Housing and Utilities: Rent, property taxes, and utility bills may increase faster than the general inflation rate.
- Overall Cost of Living: While inflation has moderated, many everyday expenses remain high, stretching the budgets of fixed-income retirees.
How to Plan for 2025 COLA Changes
The SSA typically sends personalized notices in December detailing the COLA increase and its impact on individual benefits. Here are a few steps you can take to stay informed and prepare:
- Check Your Benefits: Use your My Social Security account to view updated benefit amounts once the COLA takes effect.
- Track Inflation: Keep an eye on inflation trends and understand how they might affect your expenses.
- Consult a Financial Advisor: If you’re worried about making ends meet, a financial professional can help you optimize your retirement budget.
While any increase is better than none, the modest COLA for 2025 serves as a reminder of the importance of staying proactive about financial planning in retirement.
