The Social Security Administration (SSA) has publish the Cost-of-Living Adjustment (COLA) for the year 2025 just few hours ago. This important announcement is crucial for millions of Americans. This adjustment ensures that the Social Security benefits are in line with the changing times and inflation. Every year, a COLA is determined using the Consumer Price Index (CPI) in order to account for the changes in the rate of essential commodities and services. This noteworthy growth has been set at 3.2% for 2024.
How much is the 2025 COLA increase?
The 2025 COLA has been announced some hours ago and it is set at 2.5%. This may seem modest compared to recent years, especially the 8.7% spike in 2023. However, this reflects a cooling inflation rate, which is good news for the economy, but it may not feel like much of a boost to your wallet.
The 2.5% COLA means that the average Social Security recipient could see an increase of approximately $48 per month. For some, this will be helpful, but for others relying solely on Social Security, it may fall short of covering the full rise in daily expenses, such as groceries or housing.
When does Social security increase take effect?
If you are wondering when this adjustment will impact your payments, the answer is January 2025. The SSA has officially announce the COLA on October 10, 2024, hlwever, beneficiaries will not feel the effects until the new year rolls in. This timeline is consistent with how the SSA has operated for decades, giving recipients a clear understanding of when to expect changes.
Payments will be adjusted automatically, so you do not need to take any action to receive the updated amount. The first increased check will arrive in January, and the new amount will continue throughout the year unless another adjustment is made for 2026.
How is the COLA calculated?
The Social Security Administration applies a certain method for calculating the annual Cost of Living Adjustment which primarily makes use of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). To put it simply, the Bureau of Labor Statistics studies price changes for various categories of goods and services such as food, transport or rent and calculates the average of those prices from the third quarter of the current year, which consists of July, August and September. This helps figure out as to what is the amount by which prices have increased and in turn what is the amount of Social Security which will be raised to enable such beneficiaries to keep the same purchasing power.
For example, in the current year 2023 which has experienced soaring inflation, the COLA was higher. However, in an economic year such as 2025 where inflation has shown signs of being fully controlled, the adjustments is most likely a downscaled. This ensures that benefits do not grow faster than the increase in the cost of living. This approach helps to create an equilibrium that is consistent with the prevailing economic situation.
What does this mean for retirees?
For Social Security recipients, who number is approximately 70 million Americans, the 2025 COLA alleviation of the upsurge in prices will be a welcome relief. Nonetheless, the opinion of many retirees is that this increase will not be sufficient to take care of all their needs. “Even with a COLA, it is likely that beneficiaries will continue to see their Social Security benefits diminished due rising Medicare premiums, expensive medications, and other costs they have to pay for themselves” opines Mary Johnson, a Social Security and Medicare policy analyst with The Senior Citizens League.
The upsurge in the cost of living adjustment alleviates some of the woes, but not entirely for many people. Hence the need to budget properly and explore other forms of incomes or reliefs that may be open to you.
Final thoughts
The increase in the cost of living adjustment (COLA) in 2025 is 2.5%, this will result to an increment of approximately $48 in monthly benefits for the beneficiaries of Social Security. Hence, this adjustment is expected to take place in January 2025, so you will have enough time to get ready for the changes coming in. Although this provides some respite from the burden of inflation, you might still have to consider other methods in order to sufficiently deal with the issue of inflation, especially in terms of healthcare and housing. This declaration was announcee on October 10, 2024.
