If you depend on Social Security for your retirement income, you had better prepare yourselves for some hair-raising news. Your income in 2025 will not go as far as you may have thought. Let us break down why Social Security payments will be less than expected and what that would mean for retirees like yourself.
Why is the Social Security increase lower this year?
The annual benefits of the Social Security Administration (SSA) are adjusted via the Cost of Living Adjustment (COLA). It is through this that your benefits would be adjusted if the cost of living goes up. The amount being of COLA increase for 2025 is only 2.5 percent.
To put that into perspective:
- There was a COLA increase of 8.7% as an aftermath of the pandemic in 2023.
- In 2024, there was less inflation, thus the COLA dropped to 3.2%.
Of the most meager adjustments given to retirees lately, the 2.5 percent set for 2025 is one. It indicates lesser inflation but does not match the costs of essentials, from health and housing to food.
How does a smaller COLA impact retirees?
A smaller COLA means your monthly checks will grow by only a small amount. For example:
- The maximum monthly benefit for individuals under Supplemental Security Income (SSI) will rise from $943 to $967.
- Couples will see their payments increase from $1,415 to $1,450.
These small increases are unlikely to keep up with the actual rise in living expenses. For retirees on a fixed income, even a modest price hike for groceries or utilities can have a significant impact.
What retirees are saying about the COLA
Many retirees are expressing frustration with the lower adjustment. A poll by The Motley Fool found that 50 percent of retirees are considering going back to work to make ends meet.
Social Security advocacy groups like The Senior Citizens League (TSCL) are calling for reforms to guarantee a minimum COLA of 3 percent. TSCL’s executive director, Shannon Benton, stated, “Seniors demand that Congress takes immediate action to strengthen COLAs to ensure Americans can retire with dignity.”
Why do some believe the COLA formula is outdated?
Critics are of the opinion that the formula used to calculate the COLA does not adequately account for the expenses that retirees have to fulfill. The COLA is estimated by the SSA using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, retirees tend to spend more on:
- Healthcare: Medical costs typically rise faster than general inflation.
- Housing: Rent and property taxes continue to increase in many areas.
Darcy Milburn, director of Social Security and healthcare policy at The Arc of the United States, pointed out, “There is no question that SSI benefits need to be higher. Congress needs to update outdated rules that trap SSI beneficiaries in poverty.”
What can you do to prepare for lower Social Security payments?
If you are worried about making ends meet with smaller Social Security checks, here are a few steps you can take:
- Create a detailed budget: Track your spending to identify areas where you can cut costs.
- Look for additional income sources: Part-time work or freelancing could help fill the gap.
- Seek assistance programs: Many states offer help with utilities, housing, and food for retirees.
- Consult a financial planner: A professional can help you make the most of your benefits and other savings.
Retirees who could lose up to $16,500 in Social Security benefits soon
Is there hope for change?
Advocacy groups are pushing for reforms to make Social Security more sustainable and fair. These include calls for:
- Guaranteed minimum COLAs to ensure retirees do not fall behind rising costs.
- Adjustments to better reflect healthcare and housing expenses.
While change is not guaranteed, pressure on lawmakers to address these issues is growing.
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