When it comes to Social Security benefits, many are accessible at any age, but it’s the Social Security income that most Americans truly depend on.
This year, nearly 68 million Americans will receive this vital monthly benefit, with the majority being retirees. In the absence of a steady paycheck, this extra income is crucial, especially for those aged 65 and over. Notably, 42% of women and 37% of men in this age group derive at least half of their income from Social Security.
How Social Security’s Cost-of-Living Increase Impacts Retirees
Despite receiving Social Security checks, retired adults are increasingly feeling financial pressure due to years of inflation. According to data gathered by The Senior List, the average retiree spends approximately $2,984 per month. This amount is about $1,300 more than the average Social Security income. It’s no surprise then that 43% of retirees are more worried about their finances now than they were before retiring.
Amie Clark, co-founder and editor-in-chief of The Senior List, highlights some concerning statistics:
- More than half of retirees feel like they’re living month to month.
- Over 25% frequently stress about affording basic necessities.
These insights emphasize the growing financial strain on retirees, making it essential for them to carefully manage their resources and plan for the future.
Great news for retirees! The Social Security Administration has just announced a cost-of-living increase. But how much of an increase can you expect in your Social Security check, and will it significantly impact your retirement expenses? We consulted with experts in Social Security, retirement, and finance to bring you the details.
Understanding the Social Security Cost-of-Living Increase
The cost-of-living increase is exactly what it sounds like—adjustments to Social Security payments to account for rising costs of essential goods and services. It’s a relatively recent development in the grand scheme of Social Security.
Kevin Walton, a registered Social Security analyst certified by the National Association of Social Security Analysts, explains, “The cost-of-living adjustment, or COLA, was established by Congress as part of the 1972 Social Security Amendments. Automatic annual COLAs began in 1975. Before this, benefits were only increased through special legislation enacted by Congress.”
Since its inception, the COLA has provided beneficiaries with predictable annual adjustments. Stephen Kates, a certified financial planner and principal financial analyst for RetireGuide, notes, “The Social Security cost-of-living adjustment is an annual increase applied to every recipient’s benefits, calculated based on the change in the consumer price index over the past year.”
How the COLA is Calculated
The SSA calculates the COLA each year. It uses the CPI-W. It measures the percentage increase from last year’s to this year’s third quarter.
If the CPI-W increases during this period, a COLA is announced. The increase must be rounded to the nearest tenth of one percent. If there is no increase or the rounded increase is zero, there is no COLA for that year.
The calculation compares this year’s third quarter CPI-W average to last year’s. Specifically, it looks at the last year a COLA was announced. For instance, the 2025 COLA of 2.5% was determined by comparing Q3 2024’s CPI-W average (308.729) to Q3 2023’s (301.236). This was necessary because 2023 was the last year a COLA took effect.