Cost of living (COLA) continues to rise, and inflation makes everything costlier for millions of Americans. An unsustainable situation especially for the most vulnerable in society, the disabled, the elderly and those dependent on Social Security. The 2025 budgets are in, and predictions to where the economy will go are not looking very positive. We are now starting to see what the future holds for next year and some analysts are as worried as the citizens.
COLA adjustments for 2025
From the information available to us right now, Social Security beneficiaries can anticipate a moderate increase in their benefits for 2025, with projections suggesting a 2.6% cost-of-living adjustment (COLA). This adjustment translates to approximately $45 more per month for the average recipient, based on inflation rates.
While this figure is lower than the 3.2% increase observed in 2024 and the substantial 8.7% adjustment in 2023, it aligns closely with the 2.6% average annual increase witnessed over the past two decades. While it may seem like bad news for retirees, one thing that cannot be forgotten is that the slowdown of the increases also means a slow down in inflation and a maintenance of the status quo and purchasing power of those affected.
It is however worth noting that this projected COLA is not the lowest beneficiaries have experienced. Instances of no increase at all occurred in 2009, 2010, and 2015, with a meager 0.3% increase in 2016. The significant 8.7% surge in 2023 marked the largest since 1981, when inflation drove Social Security benefits up by 11.2%. The highest increase on record was in 1980, with a staggering COLA of 14.3%.
All these remarkable years have been such for the unfortunate reason that people were in dire straits attempting to make ends meet, and the lack of adjustments as well as the sharp increases were indicators of a volatile economy, that right now seems to be stabilizing itself. Probably not in the way most of us would like it to, but still stable in a way that seems to guarantee a level of comfort and maintained purchasing power for those receiving Social Security benefits.
Social Security benefits and Supplemental Security Income (SSI) payments are adjusted annually to keep pace with rising costs (barring the exceptions mentioned before), ensuring as best as possible that recipients’ purchasing power remains intact. These adjustments are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data from the third quarter (July, August, and September). The inflation rates for these months are aggregated, averaged, and then compared to the previous year’s third-quarter average. The percentage difference between the current and previous years serves as the COLA rate for the upcoming year.
The index used has been a point of contention between organizations in support of the elderly and the Social Security Administration for years, as organizations feel like the CPI-W does not take into account the increased cost in things like healthcare and adaptive hosing the elderly contend with. Trend like in home care and ageing in place are better for society, but are also more expensive and drain resources quicker, resources that are not keeping up with the cost because they are not included in the index metrics. For years now there has been a movement encouraging the change to the CPI-E, meant to track the expenses specifically for Americans who are 62 years of age or older.
While the projected 2.6% increase may not be as substantial as previous adjustments or as needed according to the CPI-E preferred metric, it still represents a step towards addressing the rising costs of living. For beneficiaries, this adjustment can provide some relief amid economic uncertainties and fluctuations in expenses. However, it underscores the importance of proactive financial planning to supplement retirement income and navigate potential gaps in coverage.
The official announcement of Social Security’s 2025 COLA is slated for October, with the adjustment set to take effect in January.