The new 2025 COLA increase has been unveiled by Social security. As we emerged from the pandemic, inflation climbed to levels unseen in decades, causing turmoil in consumers’ finances and adding stress to retirees living on fixed incomes.
Fortunately, in 2024, inflation has eased considerably, offering a welcome reprieve from the strain of everyday expenses. The feeling of a lower-than-expected COLA may bring disappointment though.
Social Security COLA update
At the beginning of 2024, retired workers receiving Social Security experienced a 3.2% increase in their monthly benefits. With annual inflation now dropping below that percentage, there is optimism that the cost-of-living adjustment (COLA) for 2024 has adequately supported seniors.
Despite this relief, the deceleration in inflation makes it obvious that seniors will receive a smaller Social Security COLA in 2025 compared to 2024. Speculation has been rampant regarding what this adjustment might look like, but Senior Citizens League projections have come true.
On Thursday at about 8.30 am, the much-anticipated release of September’s Consumer Price Index provided crucial insights. This index plays a pivotal role in determining Social Security COLAs, specifically via the Consumer Price Index for Urban Wage Earners and Clerical Workers.
With this data in hand, we now know how the 2025 Social Security Cost-of-Living Adjustment (COLA) will shape up.
What’s New for 2025: A 2.5% COLA Increase
Next year, Social Security beneficiaries can expect a modest 2.5% increase in benefits. While this may initially seem underwhelming compared to recent adjustments, it’s essential to understand the broader context of this change.
Understanding the Context of COLA Adjustments
- First of all, this is not the smallest COLA in history. There have been times when Social Security COLAs were a mere 0%. So, any increase, however small, is certainly preferable to none.
- Secondly, drawing comparisons between 2025’s COLA and those of recent years isn’t entirely fair. The rampant inflation experienced in the immediate post-pandemic years was an anomaly. This year, the situation has been notably different.
Keep in mind that even the Federal Reserve recognizes that a 2% annual inflation rate aligns with economic stability. This year’s inflation rates haven’t strayed far from the Fed’s goal, which explains why the 2025 COLA is more modest compared to the significant increases seen in the past few years.
When it comes to Social Security Cost-of-Living Adjustments (COLAs), it’s important to remember that they are closely tied to inflation. Essentially, what you might lose in one area, you often gain in another.
Larger COLAs typically indicate higher inflation rates, which means increased prices. Conversely, smaller COLAs suggest a slower inflation pace, resulting in prices that don’t climb as swiftly. Overall, these adjustments tend to balance things out.
Make the Best of 2025’s COLA
Overall, the 2025 Cost-of-Living Adjustment (COLA) for Social Security might not meet your expectations. However, remember that a decline in inflation is beneficial for consumers’ wallets across the board, including retirees.
Financial Strategies for the New Year
If you’re feeling anxious about your finances in the upcoming year, take some time in the coming weeks to evaluate your financial situation. Consider making lifestyle adjustments to create some financial breathing room. These changes might include:
- Downsizing your living space
- Entering the gig economy to supplement your monthly Social Security benefits
- applying for SSI
- applying for SNAP benefits