Finance

The Social Security Administration recently disclosed the 2025 cost-of-living adjustment. Starting in January, recipients will receive a 2.5% increase. This amounts to approximately per month for the typical retiree and per month for the typical disabled worker. While the lower COLA has disappointed many Americans, any additional money still helps them make ends meet. It is important to note that this increase is much lower than the 8.7% and 5.9% adjustments from 2023 and 2022 respectively, and also slightly below the 2.83% average of the previous ten years. However, a more moderate COLA does have its advantages and will likely have a greater impact on your retirement than a slightly higher raise.

The Positive Aspect of Lower Social Security COLAs

The purpose of the COLA is to ensure that Social Security benefits keep pace with rising expenses over time. It is based on changes to the Bureau of Labor Statistics' monthly Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Every year in the third quarter, the Social Security Administration averages the CPI-W figures. If the average is higher than the previous year's average, the percentage difference will be the COLA for the following year.This is why we saw record-breaking adjustments in 2022 and 2023. When inflation was on the rise in 2021, recipients could expect a larger COLA the following year. The 5.9% COLA in 2023 was a result of prices starting to increase. In 2022, after the CPI peaked in June with a 12-month percentage change of 9.1%, beneficiaries received an 8.7% COLA. A lower COLA is positive because it indicates that inflation is slowing.In October 2024, the CPI's 12-month percentage change was only 2.6%, compared to 3.2% in October 2023 and 7.7% in October 2022. Generally, retirees' budgets will be more affected by lower prices than by slightly larger monthly payments. So, although a lower COLA may seem disappointing at first, there is a bright side: daily costs are gradually becoming cheaper than in previous years.

How the COLA Affects Your Retirement Strategy

The cost of living adjustment (COLA) is not intended to significantly improve your overall financial situation, even though it provides a little extra money each month. Again, a higher COLA only aims to offset rising consumer costs and may not result in additional discretionary income. To enhance your financial well-being in retirement, you may need to adopt a more proactive approach. For example, you can find a passive income source to increase your nest egg without being overly dependent on Social Security.You can also consider moving to a smaller home or returning to work part-time if it is feasible. While many SSA beneficiaries may be dissatisfied with the new 2.5% COLA increase for next year, the good news is that it indicates a change in inflation. A smaller change is more beneficial than it may seem, and lower costs will likely have an even greater impact on your finances than the COLA.

Staying Up to Date with Social Security Benefit Information

There are several ways to stay informed about the latest Social Security data through SSA.gov. You can sign up for our Social Security Matters blog to receive relevant information, resources, and guidance on Social Security issues. Review our yearly Cost of Living Adjustments (COLA) updates to learn about any changes that may affect your monthly benefit amount. Sign up for our Email Digest to receive updates on significant events, agency news, and policy changes. Create a personal My Social Security account to use the Message Center and receive important notifications online. The Message Center is a convenient and secure interface for accessing sensitive communications that we do not send via text or email.