The anticipation for the 2025 Cost-of-Living Adjustment (COLA) continues as Social Security beneficiaries wait for the official announcement on October 10th. COLA is a crucial adjustment implemented yearly to help benefits keep pace with rising inflation and living costs, ensuring that recipients’ purchasing power remains steady. However, despite these annual adjustments, The Senior Citizens League (SCL) has noted that the purchasing power of Social Security benefits has still decreased by 20% since 2010.
Lower Projections
While the official COLA announcement is pending, projections estimate a 2.5% increase for 2025. Though it may seem like a modest increase, COLA is not directly added to your benefits but rather to your Primary Insurance Amount (PIA). Still, you can estimate the increase by adding the projected 2.5% to your current monthly benefits. For example, if you are receiving $2,000 per month, this will rise to approximately $2,050 after the adjustment.
For comparison, the COLA for 2024 was set at 3.2%, higher than the current projection for 2025. The 2.5% increase would mark the lowest COLA since 2020, when the pandemic led to economic turmoil. The highest COLA on record was 14.3% in 1980, a result of skyrocketing inflation at the time.
The lower projection this year may be a reflection of a stabilizing economy, but for many beneficiaries, it feels like too little, especially when looking at the cost of essential services like healthcare and housing, which are disproportionately high for retirees.
Key Dates
Aside from the October 10th announcement, there are other key dates that beneficiaries should keep in mind as the year comes to a close.
- Early December 2024: The SSA will send personal notices to all beneficiaries outlining their exact benefit increases for 2025. This notification will give recipients a clear view of how much more they’ll be receiving in the new year.
- January 8, 2025: The first Social Security checks with the adjusted COLA amount will be sent out to beneficiaries born between the 1st and 10th of the month.
- January 15, 2025: Those born between the 11th and 20th of any month will receive their first COLA-adjusted checks.
- January 22, 2025: Finally, beneficiaries born between the 21st and 31st will receive their first adjusted payments.
Higher COLA
While some beneficiaries may feel disappointed with the lower projected COLA, it’s important to recognize that a higher COLA isn’t always a good thing. COLA adjustments are tied to inflation, meaning that a higher COLA usually indicates that the economy is struggling and that the cost of living is rising significantly.
The 2.5% COLA projection suggests that inflation may be stabilizing as the economy begins to recover from global challenges such as the COVID-19 pandemic and the war in Ukraine, which have heavily impacted gas prices and living costs. A lower COLA indicates that price growth is slowing, which is generally a positive sign for economic stability.
However, prices remain volatile and can change rapidly depending on global events. While 2025’s COLA projection is lower, there’s no guarantee that costs won’t spike again due to unforeseen circumstances in the following years.
CPI-W Controversy
Despite the lower COLA potentially indicating economic recovery, many Social Security beneficiaries have raised concerns about how the COLA is calculated. COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks the spending habits of working-age individuals. This index doesn’t always reflect the actual spending patterns of retirees, who often spend more on healthcare and housing than the average wage earner.
Because of this, many feel that the COLA calculation shortchanges retirees by not fully accounting for the rising costs of the services they use the most. Healthcare expenses, in particular, have skyrocketed, disproportionately impacting the elderly, yet these costs are underrepresented in the CPI-W. As a result, beneficiaries may feel that the COLA adjustments aren’t enough to keep up with the true cost of living increases they face.
Planning for the Future
While the 2025 COLA announcement may seem underwhelming for some, it remains an essential tool in helping Social Security beneficiaries cope with rising costs. Even with its limitations, the adjustment helps protect against the eroding effects of inflation.
Beneficiaries should continue planning their financial futures by considering additional sources of income, such as savings, investments, or part-time work if able. With careful financial planning, the impact of inflation can be managed, ensuring that the years ahead remain stable and secure.
FAQs
When will the 2025 COLA be announced?
The 2025 COLA will be announced on October 10th, 2024.
How is COLA added to Social Security benefits?
COLA is added to your Primary Insurance Amount, indirectly increasing benefits.
When will beneficiaries see the COLA-adjusted checks?
The first adjusted checks will go out on January 8th, 2025.
Why is the projected COLA lower than previous years?
The lower COLA reflects a stabilizing economy post-pandemic.
Does COLA account for retirees’ higher healthcare costs?
No, COLA is based on the CPI-W, which doesn’t fully reflect retiree spending patterns.
