Every year, millions of Social Security beneficiaries keep a close eye on the cost-of-living adjustment (COLA) announcement to understand how much their benefits will increase to help cover rising expenses. This year, the Social Security Administration (SSA) announced a 2.5% COLA increase, set to take effect soon. Here is what you need to know about when the increase will apply and how it impacts Social Security recipients.
How much will Social Security benefits increase in 2025?
For 2025, the Cost of Living Adjustments is pegged at 2.5%, which implies that on average recipients of the benefits will enjoy a modest raise in the monthly benefits they get. For instance, consider that you earn $1,922 in benefits in a month – which is the average Social Security retirement benefit – the increase will mean that approximately $48 will be added to that check. This translates to $577 in total for the year. Still, it is important to consider that the benefit increase may differ for each individual depending on their initial benefit amount.
Why is the COLA lower than in previous years?
Even if the Cost of Living Adjustment predicted in 2025 appears to be on the lower side when contrasted to previous years or even the slight 8.7% increase observed in the year 2023, this year’s adjustment is in line with recent inflation trends which have been a bit lower than in previous years. The Cost-of-living-adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which specifies price movements of typical goods and services purchased during a given period. About inflation, it is still troubling many, however, the SAA uses last year inflation rates to determine the COLA and recent economist forecasts show this will be a small indexation.
When does the 2025 COLA increase take effect?
For many, the question they have in mind is when they will start seeing a difference in their payment amount based on the new COLA. The increase will take place with the payment of benefits in the first month of the new year. To be more specific, you can expect to see the adjusted payment starting January 1, 2025. This adjustment is applicable to the monthly benefits, and therefore all the recipients of Social Security payments such as the retirees, disabled, or other beneficiaries will automatically have this adjustment made to their payments in the month of January.
What should you expect with the COLA increase?
As a result of the COLA increase, beneficiaries may anticipate a modest increase in their payment to assist with the surging prices of necessities. Yet, a number of the recipients have expressed dissatisfaction and concerns that this year’s increase is not enough. Approximately 54% of retirees surveyed by Motley Fool believe the adjustment of 2.5% is inadequate, while 31% think it is “completely insufficient” in light of the current prices.
How can you prepare for potential cost challenges in 2025?
In spite of the shift in the figure, let me mention that economic conditions today have made it very difficult to solely rely on Social Security benefits to be able to cater for day to day activities. With this in mind, here are some recommendations on how you can assist yourself based on your budget over the course of the next year:
- Plan your spending: If you have gone back to work and expect a new income, make sure your budget for the month includes considering costs such as housing, food and health care at the top.
- Look for other ways of making money: This can be other part time activities, earnings through rent, or any other money kept away for investment purposes.
- Plan for health care costs: It is well-known that health care costs are generally higher for individuals that have a higher age group and medical inflation usually exceeds the rate of monetary inflation. Therefore, it would help looking for additional sources of income or keep extra money to assist in such cases.
Budgeting with the COLA increase in consideration enables you to prepare for next year well and manage your retirement income. There are other financial options you need to consider since social security benefits, as useful as they may be, are usually one of the many benefits in a retirement plan.
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