In the sunny city of Pensacola, Florida, 82-year-old Sherri Myers finds herself grappling with financial challenges. The anticipated Social Security cost-of-living adjustment (COLA) she’ll receive in January seems unlikely to alleviate her financial burdens. “It won’t make a dent,” she says, as she reflects on the struggle to cover her daily expenses.
Sherri shares a common concern among retirees: “Inflation has eaten up my savings,” she reveals. Without a financial cushion to rely on, she finds herself in a precarious position. Despite the expected COLA, Sherri is actively seeking work to supplement her income, which currently consists of a modest pension and her Social Security benefits.
Impact of the Social Security COLA Increase
Approximately 70.6 million Social Security recipients are bracing for a smaller cost-of-living increase for 2025 compared to previous years. This adjustment comes as inflation has shown signs of moderation. The Social Security Administration is set to make the official COLA announcement on Thursday, with analysts predicting a modest increase of around 2%.
- Many retirees, like Sherri, are concerned about the adequacy of the COLA to meet rising living costs.
- Inflation has significantly impacted savings, leaving retirees with fewer financial safety nets.
- The necessity to seek additional income sources is becoming a reality for numerous seniors.
As retirees navigate these financial challenges, the conversation around the effectiveness of Social Security adjustments remains crucial.
Social Security benefits are expected to see a modest 5% increase in 2025. In the prior years, recipients experienced a 3.2% boost in 2024 following a significant 8.7% increase in 2023, attributed to the highest inflation rates in four decades.
The Financial Challenge Ahead
The AARP anticipates that a 2.5% Cost of Living Adjustment (COLA) will raise the average retiree’s monthly benefit by $48, bringing their total to approximately $1,920 starting in January 2025.
AARP Senior Vice President of Government Affairs, Bill Sweeney, notes, “I think a lot of seniors are going to say that this is not really enough to keep up with prices.” Despite this sentiment, he points out a positive aspect: the adjustment signals a moderation in inflation.
The announcement comes at a critical time as the national social insurance plan grapples with a looming financial crisis. According to the annual Social Security and Medicare trustees report released in May, the program’s trust fund may not be able to sustain full benefit payouts starting in 2035. If depleted, the government could only cover 83% of scheduled benefits.
Funding Social Security
Social Security is primarily funded through payroll taxes collected from workers and employers. In 2024, the maximum earnings subject to these taxes rose to $168,600, up from $160,200 in 2023. Analysts predict this amount will increase to $174,900 in 2025.
Political Proposals on Social Security
- On the campaign trail, Vice President Kamala Harris and former President Donald Trump have put forward competing plans to bolster Social Security.
- Harris advocates for ensuring that “millionaires and billionaires pay their fair share in taxes” to protect the program.
