Social Security COLA Increase: Sherri Myers, 82, fights to make it financially in the sunny city of Pensacola, Florida. She may not get any help from the upcoming Social Security cost-of-living adjustment (COLA) she’ll receive in January. “It won’t make a difference,” she says with a sigh, with how she’ll be able to cover her daily expenses.
Sherri shares a common concern among retirees: ‘I’ve saved my money but inflation has eaten it up,’ she explains. She already has a precarious position to head into without a financial cushion. The small COLA means Sherri is searching for work to add income, though her current income consists of a small pension plus Social Security.
Impact of the Social Security COLA Increase
About 70.6 million Social Security recipients look set for a smaller cost-of-living increase in 2025 than they have typically enjoyed. That’s not a surprise, with inflation beginning to moderate. Officials at the Social Security Administration will announce the official COLA on Thursday and analysts expect around a 2% increase.
- Among retirees who worry the COLA won’t be enough to cover soaring living costs are many, like Sherri.
- Savings has become thoroughly shot by inflation and retirees are finding themselves with smaller nets to catch them financially.
- Many seniors are finding it a reality—the necessity to seek other additional income sources.
With retirees struggling to understand how to reduce these financial challenges, the discussion around whether adjusting Social Security is effective continues to be relevant.
In 2025, Social Security benefits are projected to increase by a modest 5%. Recipients saw a 3.2% rise in 2024 after an 8.7% surge last year as inflation reached its highest levels in nearly four decades.
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The Financial Challenge Ahead
A 2.5% Cost of Living Adjustment (COLA), which the AARP expects, would lift the average retiree’s monthly benefit to $1,920 in January 2025.
Bill Sweeney, AARP Senior Vice President of Government Affairs, says: ‘I think a lot of seniors are going to say this is not really enough to keep up with prices.’ Despite this sentiment, he points out a positive aspect: This is a moderation of inflation.
That announcement comes as the national social insurance plan faces a looming financial crisis. The annual Social Security and Medicare trustees report, released in May, said that the program’s trust fund can’t support full benefit payments after 2035. Without it, the government could only pay 83% of scheduled benefits.
Also Read: 2025 COLA Increase: SSI Recipients to Get $288 Extra Per Year
Funding Social Security
Most of the money that Social Security receives is generated by payroll taxes collected from workers and their employers. For 2024, the maximum amount of earnings subject to these taxes increased to $168,600, up from $160,200 in 2023. By 2025, analysts expect this amount will reach $174,900.
Political Proposals on Social Security
- Vice President Kamala Harris and former President Donald Trump have both proposed competing plans to bolster Social Security on the campaign trail.
- Harris calls for making sure ‘millionaires and billionaires pay their fair share in taxes’ to protect the program.
FAQs
Q. Why might the Social Security COLA increase not be sufficient for some retirees?
A. COLA is determined on the basis of the Consumer Price Index (CPI), which is an index of overall inflation. But many retirees have particular expenses, like health care, which tend to cost more rapidly than the more general inflation. Thus, the COLA may not increase to the extent necessary to cover growing costs.
Q. What expenses disproportionately affect retirees’ budgets?
A. Higher than COLA adjustments in common expenses could include healthcare premiums, the cost of out-of-pocket medical expenses, long-term care, and prescription drug costs. These expenses can be very expensive for a retiree to manage.
Q. Are there alternatives for retirees facing a shortfall despite the COLA increase?
A. If retirees are in a financial bind, there are a range of options available, like retiring part time, cutting back on their living space, generating more income by other means, or checking assistance programs like Supplemental Security Income (SSI) or Medicaid.
Q. How often is the Social Security COLA adjusted?
A. Since the CPI to Social Security changes are reviewed and recalibrated annually, COLA change results. But the number can change from year to year as inflation rates change, so some years you could see huge increases, and others hardly any.
Q. What can seniors do to better prepare for future COLA adjustments?
A. We may want to do some proactive financial planning ahead of waiting for inadequate COLA increases to create potential gaps in income. It could be budgeting their healthcare costs, saving more in their working years or talking with a financial advisor to come up with a proper retirement plan.