Social Security’s 2025 COLA Announcement – A Turning Point for Retirees

The Social Security Cost of Living Adjustment (COLA) for 2024 has left many seniors frustrated. With a modest 2.5% increase, many retirees feel their financial struggles are worsening.

In fact, a recent poll by The Motley Fool revealed that 50% of retirees are considering rejoining the workforce to supplement their income, reflecting the gravity of the situation.

Let’s look into why this year’s COLA has been a hard pill to swallow and what it means for retirees.

COLA Falls Short

The annual COLA is determined using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It compares the average CPI-W for the third quarter of the current year with the same period from the previous year. However, the CPI-W is weighted toward younger workers’ spending habits, failing to reflect the specific expenses seniors face, such as healthcare.

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Advocates argue that the Consumer Price Index for the Elderly (CPI-E) would be a better metric. The CPI-E focuses on spending patterns of those aged 62 and older, offering a more accurate reflection of retirees’ costs.

COLA

The 2.5% increase for 2024 pales compared to the 8.7% adjustment in 2023 and even the 3.2% increase in 2024. This decline has left many seniors feeling neglected. According to the poll, 54% of retirees believe the COLA is insufficient, especially when contrasted with the average monthly expenses of $5,007 for Americans aged 65 and older.

With the average Social Security payment now at $1,907, these benefits don’t even cover half of retirees’ monthly expenses. Worse, for many seniors, Social Security is their primary or sole source of income:

• 28% rely exclusively on benefits.
• 32% depend heavily on them.

Returning to Work

For many retirees, rejoining the workforce isn’t just about staying active or finding purpose. Financial necessity is driving their decisions. Jack Caporal, research lead at The Motley Fool, notes that many retirees need additional income to maintain their lifestyle and secure basic needs like food and healthcare.

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Part-time and flexible jobs are often recommended for seniors seeking extra income. These positions can provide financial relief, better health insurance options, and opportunities for social engagement. However, the fact that half of retirees are considering this option underscores the inadequacy of current COLA adjustments.

Impact

One of the most significant issues with low COLAs is the gradual erosion of purchasing power. According to The Senior Citizens League (TSCL), Social Security benefits in 2024 are worth only 80 cents on the dollar compared to 2010. This means retirees are losing financial ground, even with annual adjustments.

Change

Organizations like TSCL are pushing for changes to how COLA is calculated. They advocate for:

• Adopting the CPI-E to better account for seniors’ expenses.
• Instituting a minimum 3% COLA to ensure retirees don’t lose purchasing power.

Shannon Benton, TSCL’s executive director, emphasizes the urgent need for reform: “Seniors deserve financial relief. Congress must act now to strengthen COLAs, ensuring Americans can retire with dignity.” TSCL research shows that 67% of seniors depend on Social Security for more than half their income, while 62% worry their retirement income won’t cover essentials like groceries and medical bills.

Looking Ahead

The current system leaves many retirees vulnerable, with COLAs failing to keep pace with rising costs. While some see rejoining the workforce as a solution, this approach is not sustainable for everyone. A stronger, fairer COLA calculation method—such as the CPI-E—could provide much-needed relief.

For retirees struggling to make ends meet, advocacy for reform and careful financial planning are crucial steps to securing a stable future.

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