In 2025, Social Security will raise the COLA by a new amount. As we came out of the pandemic, inflation rose to levels not seen in decades. This made people’s finances more unstable and added stress to the lives of retirees who live on fixed incomes.
Inflation has slowed down a lot since 2024, which is good news because it makes daily costs less stressful. A COLA that is lower than imagined may make you feel let down, though.
Social Security COLA update
At the start of 2024, the monthly benefits of retired workers who were getting Social Security went up by 3.2%. Now that yearly inflation is below that level, there is hope that the cost-of-living increase (COLA) for 2024 has helped seniors enough.
Even though this is good news, it is clear that seniors will get less in Social Security COLA in 2025 than they did in 2024 because inflation has slowed down. There has been a lot of talk about what this change might look like, but what the Senior Citizens League predicted has come true.
The much-anticipated release of September’s Consumer Price Index on Thursday around 8:30 a.m. gave us important information. Through the Consumer Price Index for Urban Wage Earners and Clerical Workers, this index is a key part of figuring out Social Security COLAs.
After getting this information, we now know how the Cost-of-Living Adjustment (COLA) for 2025 will look.
What’s New for 2025: A 2.5% COLA Increase
Social Security recipients can look forward to a small 2.5% rise in their payments next year. Compared to recent changes, this may not seem like a big deal at first, but it’s important to understand the bigger picture of this change.
Understanding the Context of COLA Adjustments
- First of all, this is not the smallest COLA in history. There have been times when Social Security COLAs were a mere 0%. So, any increase, however small, is certainly preferable to none.
- Secondly, drawing comparisons between 2025’s COLA and those of recent years isn’t entirely fair. The rampant inflation experienced in the immediate post-pandemic years was an anomaly. This year, the situation has been notably different.
Remember that even the Federal Reserve agrees that a yearly inflation rate of 2% is good for the economy. This year’s inflation rates haven’t strayed too far from the Federal Reserve’s target. That’s why the 2025 COLA isn’t as big of a raise as the ones in the last few years.
It’s important to know that Social Security Cost-of-Living Adjustments (COLAs) are closely linked to inflation. Sometimes, what you lose in one area, you make up for in another.
When COLAs are bigger, inflation rates are usually higher, which means prices are going up. On the other hand, smaller COLAs mean that inflation is happening more slowly, which means that prices don’t rise as quickly. In general, these changes make things more even.
Make the Best of 2025’s COLA
The 2025 Cost-of-Living Adjustment (COLA) for Social Security may not be what you were hoping for. Always keep in mind, though, that a drop in inflation is good for everyone’s wallet, even retirees.
Financial Strategies for the New Year
You should take some time in the next few weeks to look at your funds if you’re worried about them in the coming year. To free up some money, you might want to think about making changes to the way you live. Some of these changes could be:
- Downsizing your living space
- Entering the gig economy to supplement your monthly Social Security benefits
- Applying for SSI
- Applying for SNAP benefits
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