With inflation cooling, the Social Security Administration (SSA) is preparing to announce new cost-of-living adjustments (COLA) for beneficiaries. These changes will affect millions of retirees across the United States. A key question many ask is: will the COLA increases be applied to payments starting in November, or do they take effect in 2025?
How the Social Security COLA Is Determined
Every year, COLA is determined by the SSA based on the CPI information. In doing this, it compares the percentage change of CPI in the third quarter of every year (from July until September) with that of the same months in the previous year. Inflation rates are thus reflected in the COLA, which aims at providing enough retirement incomes for retirees to meet their increasing living costs.
The slight increases shown by CPI signal that there is little inflation, and hence prices have not changed that much. On the contrary, higher CPIs mean more inflationary pressures, resulting in increased costs for necessities such as food, healthcare, and housing, among others.
The U.S. government Bureau of Labor Statistics states that the July 2024 CPI report shows an increase of 2.9% in average prices, marking the lowest increase in twelve months since March 2021.
According to professor Krieg Tidemann, who teaches economics at Niagara University, “the Social Security Administration determines its cost-of-living adjustment based on its expectations for next year’s inflation rate.” This makes sure that benefits do not fall behind inflation, providing more financial security to retirees.
When Are COLA Increases Applied?
It is plain and simple: COLA increases are not included in the payments made during November. This is only applicable in January of the subsequent year. COLAs are announced by SSA every October, and therefore, with the beginning of January, updated benefits start rolling out. Henceforth, the COLAs for 2025 will appear on checks given out as of January 2025 and not November 2024.
For instance, it was in October 2023 when the COLA 2024 was published, resulting in a 3.2 percent beneficiary increment. Thus, those adjusted payments began in January 2024; this way all beneficiaries have theirs updated at the beginning of the year, which aligns with SSA’s regular payment schedule.
What to Expect for the 2025 COLA
Specialists and activists, for example, The Senior Citizens League, have initiated estimating COLA for 2025. Current forecasting suggests a 2.57% rise down from the previous 2.63%. Compared to COLA of 3.2%, which kicked in last year, this is a relatively small increase when you consider that there was a historic rise of 8.7% in 2023, the highest since 1981.
In recent years, COLA increases have fluctuated due to spikes in inflation rates. For example, in 2022 beneficiaries received an increase of 5.9%, which was followed by a dramatic increase of 8.7% in 2023. High inflation with a peak rate of 9.1% in June 2022 was behind such big increases. But with inflation stabilizing, specialists think COLA will revert to its usual levels, about a 30-year average of 2.4%.
How to Maximize Your Benefits
Even if COLA adjustments assist in maintaining purchasing power, additional income may be desired by some beneficiaries. One of the options available to retirees is part-time work since many employers today are offering flexible and remote job opportunities.
However, it should be noted that if you start drawing Social Security benefits before reaching your full retirement age and continue with your job, there is a limit on how much you can earn before your benefits are cut down. On the other hand, when you reach your full retirement age, there are no limits on earnings.
In addition to working, retirees can also tap into other retirement accounts, such as 401(k)s, IRAs, or pensions, to supplement their Social Security income. A good way to achieve financial security, particularly during retirement years, is through revenue stream flow diversification.
Monitoring inflation and future COLA predictions
The adjustment of the cost of living due to inflation is the basis of the COLA adjustments made by the SSA, and when this inflation moderates, so will such increases. Financial advisors suggest watching the CPI that defines future Social Security payments. Jeremy Keil, a financial adviser at Keil Financial Partners, notes, “The only reason COLA was so high in 2022 and 2023 is because inflation was so high in 2021 and 2022.”
According to the anticipated 2.57% COLA for 2025, it reflects the present economic circumstances, indicating a clear drop in the rate of inflation. Despite likely being lesser in magnitude, these increases remain an essential supply to Americans as they help to cope with increasing living expenses.
