As 2024 nears its end, Social Security recipients are prepared for what may be some disheartening news about their benefits. The latest estimates peg the 2025 COLA at as low as 2.5%, a significant decrease from the large increases of the past few years. The following article discusses what this means for beneficiaries, how it stacks up against previous adjustments, and what this might mean in the grand scheme for retirees.
The projected COLA for 2025
Based on inflation recorded during the third quarter, the SSA is set to announce the official COLA for 2025 on October 10. As it stands, current projections are calling for a 2.5% increase-a far smaller adjustment than any seen since 2021 when the COLA came in at just 1.3%. That reflects a cooling rate of inflation, with the Consumer Price Index up 2.5% year-over-year through August 2024.
By comparison, beneficiaries enjoyed an 8.7% COLA in 2023-the largest increase in four decades-and a 3.2% boost in 2024. The dramatic difference between these two numbers underlines how inflation can greatly change the financial outlook for retirees.
Financial impact on beneficiaries
At a projected increase of 2.5 percent, retirees who take home an average monthly benefit of $1,870 would have their checks upped by about $46.75 each month, to a new total of $1,916.75. Translate that to a year’s worth of time, and they’d take home an extra $561.
But the important thing to note here is that this may not go very far in helping many seniors, since healthcare, housing, and daily living costs continue to rise. This modest bump isn’t likely to keep pace for many retirees. For example, in 2025, Medicare Part B premiums will also rise, likely further whittling down the net benefit increase for many recipients.
Historical context and expectations
To put this projected COLA into perspective, it is instructive to consider longer-term trends. The average annual COLA over the past twenty years has been roughly 2.6%, and there have been several years when no adjustment was made at all because inflation was flat. The estimate of 2.5% is fairly consistent with this historical norm but is nonetheless well below what many beneficiaries have gotten used to after higher adjustments in recent years.
By definition, the COLA is supposed to reflect the change in consumer prices, as represented by the CPI-W. The SSA makes use of the third-quarter inflation data every year to calculate how much to increase Social Security benefits.
Broader implications for seniors
The ripple of this smaller COLA extends far beyond benefit quantities into the modern economic plight with which seniors are increasingly contending. An overwhelming number of seniors rely on Social Security as a primary source of income: about two-thirds report using the program to provide more than half of their monthly expenses. But because growth in the cost of living has often outpaced the rate at which benefits are increased, that purchasing power shrinks.
According to estimates by The Senior Citizens League, COLAs that have been too meager to keep up with the actual rate of inflation relevant to senior citizens’ expenses have caused Social Security to lose about 20 percent of its purchasing power since 2010. The consequences of such a trend create uncertainty in financial security for older Americans in their struggle to afford rising costs buoyed inadequately by benefits.
Preparing for future changes
As beneficiaries wait for word on the COLA that will take effect next year, it is crucial to address all changes in their finances. The strategies that may be pursued by the seniors include:
- Changes in budgeting: Review and adjust their monthly budgets based on projected income and expenses.
- Additional streams of income: Pursue part-time work or other options available for them to generate extra income in addition to Social Security.
- Seeking financial assistance: Research government assistance programs or community resources that can supplement the basic necessities.
