When someone relies on Social Security to cover basic expenses such as food, shelter, and medical care, any change in benefits can feel like a roller coaster ride. 2025 paints a different picture: a lower cost-of-living adjustment (COLA), reflecting a more stable economy, but one that may complicate the finances of those already facing economic difficulties.
And it’s not just numbers; it’s about the people who rely on this income to live comfortably. With inflation under control but prices remaining high in many critical sectors, the key question is how to manage these shifts and plan for the future.
What is COLA?
The COLA (Cost of Living Adjustment) is a mechanism that adjusts the payments received by Social Security beneficiaries to protect their purchasing power in the face of inflation; in other words, it ensures that the beneficiaries’ pockets are unaffected by inflation.
And what has happened this year?
After years of high inflation, the situation is beginning to stabilize, with the COLA expected to be 2.6% by 2025 (compared to 8.7% in 2023 and 3.2% in 2024). As previously stated, the situation is stabilizing, as are the prices of essential goods such as energy (for example, oil is now less than $70 per barrel).
However, while this is very good news, it is not so good news for retirees and Social Security beneficiaries, who will see their monthly check have “less” money in it, especially in many parts of the country where food and utility prices remain skyrocketing.
What does the FED have to do with this?
Since September 2024, the Federal Reserve has decided to cut interest rates for the first time in years. This may benefit those who still have debts (such as mortgages or loans), but the lower COLA adjustments may leave many retirees feeling that their income is insufficient to cover their expenses.
The FED believes that inflation will stabilize at 2.1% by the end of the year, implying that future adjustments will be similarly small.
So, are we losing money?
It is not losing money in the traditional sense; the Social Security payment will remain unchanged; however, the “extra” that we add from the COLA will be reduced; this will have the greatest impact on the purchasing power of the beneficiaries, as, while inflation is stabilizing, many basic products’ prices have not decreased.
That is, they will continue to receive the same amount of money as they have in previous years, but they will be able to purchase fewer products or goods due to high prices.
And how can we prepare for this?
There are changes that are difficult to accept, but it is critical to organize and plan for the future. First and foremost, determine where you can save money and prioritize your most important expenses.
If you have loans or mortgages, one option you have is to refinance; now that interest rates have dropped, this will help you save money on your monthly expenses.
We may not like the changes, but 2025 will be an opportunity to return the country to inflation levels not seen in years, even if this means that retirees and those reliant on the SSA will face potentially more difficult economic situations. But remember, it’s only a small step back to normality!
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