Social Security provides essential financial support to millions of retired workers in the U.S. According to the latest data, over 55 million retirees receive an average benefit of $1,900.
However, this amount will soon be affected by changes in cost-of-living adjustments (COLAs). If you are retired or planning to retire soon, it’s important to understand how these changes might impact your benefits.
What Is COLA and Why Does It Matter?
Cost-of-living adjustments (COLAs) are designed to help retirees keep up with rising prices. Despite a slight easing in inflation, many retirees still struggle with their finances. The 2024 U.S. Retirement Survey reveals that less than half of retirees feel financially secure, and almost 90% are concerned about how rising prices are affecting their savings.
Social Security benefits are adjusted annually to help maintain purchasing power. However, the Senior Citizens League has noted that these adjustments are not always keeping up with inflation as they used to.
The 2024 COLA Increase
In 2024, Social Security benefits will see a 3.2% increase due to COLA. However, two-thirds of retirees say their expenses have gone up more than this adjustment, reducing the benefit’s effectiveness. With expectations of a smaller COLA in 2025, many retirees are worried about their financial future.
How COLAs Are Calculated
COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures price changes based on spending patterns of hourly workers, which may not fully reflect retirees’ spending needs, particularly for things like housing and healthcare.
To determine the COLA, the average CPI-W from July to September is compared to the previous year’s data. For example, a 3.2% increase in the CPI-W led to a 3.2% COLA for 2024. The COLA for 2025 will be determined once the CPI-W data for the third quarter is available.
What to Expect for 2025
Projections suggest a 2.6% COLA for 2025. The exact figure will be confirmed on October 10 when the Labor Department releases September’s inflation data, and the Social Security Administration announces the official COLA. The Senior Citizens League’s latest forecast has slightly lowered its estimate from 2.7% to 2.6%.
A 2.6% COLA would be the smallest in four years, and if inflation remains low, the actual COLA might be even lower. Here’s how a 2.6% COLA could affect average retirement benefits:
| Age | Current Monthly Payment | Payment with 2.6% COLA (2025) |
|---|---|---|
| Average | $1,900 | $1,949 |
| Age 62 | $2,710 | $2,780 |
| Age 67 | $3,822 | $3,921 |
| Age 70 | $4,873 | $5,000 |
Looking Ahead
The future of Social Security benefits is uncertain and relies heavily on inflation rates. Although COLAs are intended to help retirees keep up with rising costs, they often fall short, leaving many retirees financially vulnerable. Staying informed about these adjustments and consulting with a financial advisor can help retirees prepare for these changes.
What is a Cost-of-Living Adjustment (COLA)?
COLA is an increase in Social Security benefits to help retirees keep up with inflation and rising living costs.
How is the COLA amount determined?
The COLA is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), comparing data from July to September each year.
What was the COLA increase for 2024?
The COLA for 2024 is 3.2%.
What is the projected COLA for 2025?
The projected COLA for 2025 is 2.6%, though this figure may change based on future inflation data.
How can retirees prepare for changes in their Social Security benefits?
Retirees should stay informed about COLA adjustments and consider consulting with a financial advisor to adjust their retirement plans as needed.