Social Security is still an important way for millions of old Americans to make money. A lot of retirees depend on these monthly payments to pay their bills, so they are looking forward to hearing about the 2025 cost-of-living adjustment (COLA). However, this much-anticipated information won’t be out until October. To explain the delay, Social Security COLAs are decided by looking at inflation figures gathered during the whole third quarter of the year, which is still going on.
Even though there isn’t a lot of public information, there are signs that Social Security recipients may be let down by the 2025 change. This worry is caused by two main things.
Reasons why seniors are worried about the COLA
First, the most recent COLA estimate points to a smaller increase than was first thought. The Senior Citizens League, a nonpartisan group that works to help seniors, predicted in July that Social Security payments would go up by 2.63 percent in 2025. But after seeing the July inflation number, the group changed their prediction to 2.57%. This new estimate is a lot less than the 3.2% raise that people who get Social Security got at the beginning of 2024.
A smaller COLA usually means that inflation is slowing down, which could make things easier for retirees financially. However, many seniors would still rather have their Social Security payments go up more. It makes sense that people would want a bigger raise because it would give them more financial security as living costs rise.
Second, there is a case in history where COLAs did not keep up with inflation. The 2025 COLA estimate might be changed for the better next month, and the real increase could be higher than the current estimate of 2.57 percent. However, this probably won’t be enough to keep beneficiaries’ buying power. The truth is that Social Security COLAs have not always been enough to cover this need.
According to the Senior Citizens League, seniors on Social Security lost an amazing 36% of their buying power between 2000 and 2023. A mistake in the way Social Security COLAs are figured is a big reason for this drop.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to track changes in the COLAs. But the CPI-W doesn’t really show the exact costs that seniors on Social Security usually have to pay because the costs that wage earners in cities have may not be the same as those that Social Security users have. This means that there is a gap between the COLA and the real cost of living for retirees.
Some people have suggested that to fix this problem, the way Social Security COLAs are calculated should be changed by using a different index, called the Consumer Price Index for the Elderly (CPI-E). This different measure would better show how older Americans spend their money. If that doesn’t happen, though, Social Security COLAs are likely to keep disappointing retirees, and the 2025 raise might be no different.
Because a lower COLA in 2025 could hurt a lot of retirees, people who are still working need to make sure they have other income sources besides Social Security saved up for when they retire. It can be risky to depend only on Social Security payments, especially if the increases don’t keep up with inflation.
Making regular contributions to an Individual Retirement Account (IRA) or a 401(k) plan is a good way to improve your financial future. People can build up a big nest egg over time by slowly putting money into these retirement accounts.
Putting off getting benefits until you turn 70 is another option to think about, especially for people who haven’t claimed Social Security yet. Depending on their full retirement age, people can get up to 24% more each month in benefits if they put off their claim. Starting with a bigger monthly benefit can give you a big cash cushion, which can make any future COLA increases feel bigger.
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