Each year, Social Security beneficiaries eagerly await news about the Cost of Living Adjustment (COLA). For those on fixed incomes—where increases are tied to a set base amount rather than variable salary growth—any rise can offer relief, especially amidst lingering inflation and pandemic-related challenges.
In 2024, inflation outpaced the COLA within the first half of the year, leaving many retirees skeptical about the 2025 adjustment. Unfortunately, those expecting a modest increase were correct, as the COLA was set at 2.5% on October 10, 2024. While this announcement has sparked debate among experts, the impact of the increase will vary depending on individual circumstances.
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COLA’s Impact
The 2.5% adjustment indicates cooling inflation, a positive economic sign. However, retirees receiving Social Security benefits may find the increase insufficient to cover rising expenses. For context, the average couple receiving benefits in 2024 earned $3,014 per month or approximately $36,168 annually.
While this figure isn’t trivial, it only covers about 40% of most retirees’ expenses, as intended by Social Security. The remainder is typically supplemented by pensions or retirement savings accounts.
Increase
For the average retired couple, the 2.5% COLA translates to an additional $75 per month, bringing their monthly benefits to $3,089. Annually, this results in a $900 increase. However, whether this adjustment is adequate depends on individual circumstances, particularly in the face of rising living costs.
To calculate your new benefit amount, simply multiply your 2024 payment by 1.025 (representing a 2.5% increase). For those seeking confirmation, official COLA notices will arrive in December via mail or your online Social Security account. Updated payments will begin in January 2025 based on the following schedule:
| Date of Birth | Payment Date |
|---|---|
| 1st to 10th of the month | January 8, 2025 |
| 11th to 20th of the month | January 15, 2025 |
| 21st to 31st of the month | January 22, 2025 |
COLA
Despite yearly adjustments, many retirees find that COLA increases do not fully address their growing financial needs. Research by The Senior Citizens League (TSCL) reveals that Social Security benefits have lost approximately 20% of their buying power since 2010. The underlying issue lies in how COLA is calculated.
Currently, COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Critics argue this index does not reflect seniors’ actual spending, particularly for healthcare.
Proposals to use the Consumer Price Index for the Elderly (CPI-E), which weighs costs like medical expenses more heavily, have yet to gain traction among lawmakers.
Strategies for Coping
For retirees struggling to make ends meet, several strategies can help boost savings or income:
- Reduce discretionary spending: Cut back on non-essential expenses where possible.
- Supplement income with work: Consider part-time or freelance opportunities to bring in additional earnings.
- Delay retirement: Postponing benefits can result in higher monthly payments in the long run.
- Assistance programs: Investigate government programs for housing, food, or healthcare support.
While COLA increases provide some relief, planning ahead and utilizing additional resources can help retirees better manage financial challenges.
FAQs
How much is the 2025 Social Security COLA?
The COLA for 2025 is 2.5%, announced in October 2024.
How is COLA calculated for benefits?
COLA is based on a percentage of your current monthly benefit.
Why do retirees lose buying power?
COLA uses CPI-W, which doesn’t focus on senior expenses like healthcare.
When will I receive the updated payment?
Payments begin in January 2025, based on your birth date.
What can retirees do if COLA isn’t enough?
Reduce spending, work part-time, or investigate assistance programs.
