The official 2025 cost-of-living adjustment (COLA) for Social Security payments was announced by the Social Security Administration (SSA) on October 10, 2024. This came after the September Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was released.
The 68 million or so Americans who depend on these benefits are looking forward to this news very much. About one-third of retirees depend on their pension for their main source of income, so the change is big, especially now that prices are going up due to inflation.
The SSA uses the CPI-W to figure out how much to change Social Security payments every year to account for inflation. It is calculated by the Bureau of Labor Statistics (BLS) as the percentage rise in the CPI-W between the highest third-quarter average of the current year and the highest third-quarter average of the prior year.
SSA will figure out the change in the CPI-W from the third quarter of 2023 to the third quarter of 2024 once the September CPI-W is made public. The last COLA will be rounded to the nearest tenth of a percent, and it will start to take effect in early 2025.
One thing that retirees really want is for the way the COLA is figured to be changed. Seventy-five percent of people who answered the poll by The Senior Citizens League (TSCL) want to change the Consumer Price Index for the Elderly (CPI-E) to the CPI-W as the basis for the COLA.
The CPI-E is a special measure that is meant to show how older adults spend their money and take into account costs like housing and health care that affect retirees more than other people. If we move to the CPI-E, seniors might get bigger raises in their benefits, which would help them better handle their money needs.
Experts think that the COLA will be about 2.5% in 2025, which is less than the 3.2% COLA that was given in 2024. This is based on current economic data. Even though a lower COLA means that inflation is lower, many retirees may not be able to keep up with the rising cost of living with the smaller raise.
TSCL did a study in 2024 and found that retirees are getting more and more worried about how their savings will be lost because prices are still high. In fact, 78% of those who answered said that their regular costs for things like food and housing had gone up since last year.
A growing fear of running out of money in retirement is something that many people worry about. Within the next ten years, Social Security will likely run out of money. At the same time, Americans are finding it harder to save enough for retirement because people are living longer and the cost of living is rising.
Since the COLA for Social Security payments will be smaller in 2025, retirees may need to think about moving to a cheaper area to make their money last longer. Some states are better for retirees because they have lower costs of living and tax breaks.
Here are the top 11 states that can help offset the impact of the 2025 COLA on Social Security benefits
- South Carolina: With a low cost of living and affordable median home prices, South Carolina is tax-friendly for retirees, especially since Social Security benefits are not taxed and seniors can claim a $10,000 deduction on other retirement income.
- Nevada: Although the cost of living is slightly above the national average, Nevada’s lack of state income tax and low property taxes make it a very tax-friendly state for retirees. Food and prescription drug exemptions also help reduce overall expenses.
- Texas: With no state income tax and a relatively low cost of living, Texas is a popular retirement destination. Despite high property and sales taxes, retirees benefit from tax exemptions on essentials such as food and medicine.
- Michigan: Michigan boasts a low cost of living, affordable housing, and favorable tax treatment for retirement income. Healthcare services vary by region, but are generally well regarded.
- Mississippi: Known for its low cost of living and affordable housing, Mississippi exempts all retirement income from taxation, making it one of the most tax-friendly states for retirees.
- Georgia: With a cost of living 9% below the national average and affordable home prices, Georgia offers retirees an attractive environment that combines financial benefits with a pleasant climate.
- Delaware: With a cost of living close to the national average and no sales tax, Delaware is a retirement-friendly state with affordable housing and a moderate climate.
- Tennessee: Known for its low cost of living and no state income tax, Tennessee is a popular choice for retirees. Home prices remain affordable, and the state offers beautiful scenery and cultural attractions.
- Florida: A perennial favorite for retirees, Florida’s lack of state income tax and abundance of retirement communities make it an ideal place to retire, despite its slightly higher cost of living.
- South Dakota: With no state income tax, affordable housing, and a low cost of living, South Dakota continues to be one of the best states for retirees seeking financial security and outdoor activities.
- Wyoming: At the top of the list, Wyoming offers retirees a low cost of living, no state income tax, and affordable housing. Its stunning natural landscapes make it an attractive destination for retirees seeking both peace and financial stability.
Also See:- Major changes announced in Medicare benefits for 2025 – Nothing will be the same again