The Social Security Administration (SSA) is expected to make an announcement about the cost-of-living adjustment (COLA) for 2025, after the release of inflation figures for the month of September on October 10, 2024. The purpose of the adjustment is to protect the purchasing power of retirees by making sure that Social Security benefits keep up with inflation.
Rising Inflation Continues to Impact Retirees
The announcement is highly anticipated among countless retirees due to the pressure inflation has placed on household budgets. According to a 2024 Gallup poll, 63% of American adults have been impacted by the increase in prices, a 45% increase from 2021. While Social Security beneficiaries are slowly increasing their benefits, it is in line with the inflation trend – that the cost-of-living adjustment or COLA is needed.
Expected COLA for 2025: Smallest in Four Years
The Senior Citizens League (TSCL), a nonprofit organization advocating for retirees, has projected a 2.5% COLA for 2025. If this estimate is accurate, it will be the smallest increase in the last four years, reflecting lower inflation compared to previous years. In 2024, for example, the COLA was 8.7%, which was driven by sky-high inflation rates.
Who Will See the Biggest Dollar Increase?
Retirees with higher base benefits will experience the greatest dollar increases even though all beneficiaries will be awarded a 2.5% rise. To illustrate, the weight attributable to the average Social Security stipend given to retired employees stands at $1,920 per month in the month of September 2024. This COLA of 2.5% would translate to an increase of 48 US dollars per month benefit in the year 2025. Notably beneficiaries with above average benefits for example those who did not start taking Social Security benefits at the age of sixty-five will have a stretch of increase larger than this. Benefits received by a 70-year-old retiree averaged $2068 in the year 2024. A 2.5% increase would result in an approximate $51.70 increase in their monthly payment.
Why Age 70 Matters for COLA
Individuals in retirement are graced with the highest Social Security benefits when they reach the age of seventy. This is primarily because benefits are derived from a person’s work history alongside their age at which they choose to make a claim. Persons who, in this case, retire beyond the age specified for retirement which is 67 in most cases, up to 70 or beyond receive what is referred to as ‘delayed retirement credits’ for claims and that increases the benefits they receive weekly. For this reason, a boost that comes with retirement credits ceases at age 70, therefore making the benefits entitled to that age group the most. Hence, a two point five percent increase once an individual turns 70 years of age produces the highest increase in nominal-dollars.
Final Thoughts: Inflation and Future Adjustments
COLA continues to play a fundamental role in shielding the retirees from adverse effects of inflation. The 2025 COLA is expected to be lower than those of recent annual increases but nevertheless guarantees that benefits are adjusted to reflect the prevailing economic conditions. Together with other information regarding Social Security benefits for the next year, look out for an official announcement by the SSA in October in regard to the precise COLA rate and how it will affect you.
