With the close of 2024, millions of Americans who rely on Social Security benefits are preparing for what this will mean in terms of changes to their financial world when 2025 rolls around. The anticipated Cost-of-Living Adjustment, or COLA, is among the most critical factors to take into consideration regarding monthly payments, as it drastically changes financial positions both for retirees and people alike with disabilities.
Understanding the COLA for 2025
The SSA just announced a 2.5% COLA for the year 2025 after adjustments of 3.2% in 2024 and 8.7% in 2023, further discussed in this article, SSA announces 2025 COLA increase: How much is it, when does the Social Security rise take effect?. This adjustment is to help beneficiaries keep pace with inflation and increased living costs. For the average retiree receiving about $1,920 each month, this means an extra $48 for approximately $1,968 monthly.
Because the COLA represents the rate of inflation, it is directly linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers. While this adjustment is needed for purchasing power maintenance, many beneficiaries are concerned that the increase is not adequate to cover increasing expenses, especially against the background of sustained inflationary pressures.
Impact on beneficiaries
This new COLA will affect approximately 70 million Social Security recipients and about 7.5 million Supplemental Security Income (SSI) beneficiaries. For most, these payees are receiving at least one-half if not all of their income, so it is quite important to calculate how the changes in such pay will influence their budgets.
This means that individual recipients now receiving an average check of $698 would find their payments climb to about $715, while couples now averaging $1,415 would see that rise to about $1,450. But to many beneficiaries, it will still be very hard to pay for basic needs such as food, shelter, and medical care. In fact, even with a COLA increase, many seniors struggle to continue the same living standard while costs rise.
The larger economic context
The smaller COLA reflects a softening in the inflation rates compared with those record highs reached in 2022 and 2023. But while inflation may be slowing, the prices of essential goods and services remain high. Many retirees have felt the pinch at grocery stores and pharmacies, where price increases have outpaced wage growth.
Apart from COLA changes, there are changes in the maximum taxable earnings falling under the coverage of Social Security taxes and also changes in the Full Retirement Age. This cap will rise from $168,600 in 2025 to about $176,100, which means higher earners will contribute more toward funding the program.
Future concerns for Social Security
Looking ahead, the long-term sustainability of the Social Security program remains a pressing concern for many experts over its decline, as firmly stated in this article,Social Security COLA Update: Why could it be the lowest increase in recent years?. Indeed, in recent reports, the Social Security and Medicare trustees said the trust fund would be depleted by 2035, at which time beneficiaries would get only about 83 percent of the scheduled benefits unless reforms were enacted.
The demographic changes have brought more beneficiaries and fewer paying into the system, and it’s not exactly easy for policymakers to find a way to ensure Social Security is available for generations to come. The development has stoked a debate among presidential candidates on how the program can be protected through reforms.
Democratic presidential candidate Kamala Harris wants increased taxes on high-income earners to boost the Social Security fund. The Republican candidate Donald Trump promised never to reduce benefits or increase retirement age but instead focuses his efforts on reducing taxes for seniors.
Read more: Social Security calculator: how to estimate my benefits with COLA increase in 2025?
Read more: How much will Social Security increase in 2025? Here is the experts’ negative prediction on the COLA increase on October 10
Read more: The 2025 COLA increase is here – If you follow this step, you can find out how much your Social Security checks will go…
