Social Security beneficiaries saw at the beginning of the year an increase of 3.2% in their monthly check. This is on the back of a way bigger increase of 8.7% that they perceived in 2023. The recent boost may not seem like much, but it is still higher than the decade’s average of 2.6%, which means that the increase in 2024 is still a generous one and may be in line with the expected Cost of living Adjustment (COLA).
However, for 2025, retired Americans may “may be looking at a smaller raise. And at first it might seem like a bad thing. But when we dig deeper, it’s easy to find the economic silver lining” as reported by The Motley Fool.
The monthly check increases that are proposed by the Social Security Administration are based on the Cost-Of-Living Average, also known as COLAs. These are calculated based on third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers. So, if on the third quarter this index rises, Social Security benefits tend to follow suit.
COLA in 2025
Therefore, we can see the reasoning behind having such boosts in monthly checks in 2023 (8.7%) compared to 2024 (3.2%). And why we can expect the benefits in 2025 to have a smaller boost. This initially seems like a bad thing, since the increase in the monthly check is smaller, therefore it will mean less money in the pockets of Americans that have spent their lives working.
However, a smaller boost will be trailing behind a smaller inflation index. Meaning, the cost-of-living should remain at a more predictable level, reducing the pressure imposed in the wallets of Americans to pay for basic necessities such as food, electricity, and gas.
These projections come from the nonpartisan Senior Citizens League, putting 2025’s Social Security COLA squarely on the average for the past decade at 2.6%. And while this being a projection, we can expect it to change as the year evolves, is one additional sign that inflation is easing off for now and that the cost-of-living will not be as high as the previous couple of years.
One of the many recommendations from The Motley Fool, especially for working Americans, is to not see the Social Security’s COLAs as the thing to worry about. After decades of hard work, setting yourself up to depend on whether your monthly check is going to increased paired with the previous year’s inflation can be considered a fool’s errand. When we talk about an increase of 3.2% for 2024, we are also talking about an average monthly check increase in the tenths, not in the hundreds. So worrying about them is setting yourself up for a pretty cash-strapped living.
And while it is too soon to definitely say what the Social Security COLAs will be in 2025, we can certainly project that, if you set your life so that the announcements on the new boosts are not so monumental in your life, you should be okay.
So, most recommendations will float around aiming to make your savings your primary source of retirement income, so you can dedicate your Social Security benefits to supplement your income and pay your bills easier to manage.
A quick example would be to set aside $300 a month for retirement over a 40-year period (starting at 26 years old and aiming for a retirement age of 66 years old). Calculating an average annual 8% return (just below the stock market’s average), you could be looking at just under $1 Million for your retirement. With that basket full of eggs, you can see how worrying about your boost from Social Security, suddenly doesn’t feel like it should take priority over fulfilling your dreams during retirement.