The Cost-of-Living Adjustment (COLA) for 2025 will be announced on October 10, 2024, and is expected to be around 2.5%. While this increase is smaller compared to previous years, it ensures that Social Security beneficiaries can still keep up with rising costs.
This adjustment is important for retirees and others who rely on Social Security as their primary source of income. The increase will be reflected in Social Security checks starting in January 2025. Here’s everything you need to know about the upcoming COLA update.
What is COLA and How is it Calculated?
The Cost-of-Living Adjustment (COLA) is an annual increase made to Social Security benefits to help beneficiaries maintain their purchasing power as the cost of living rises.
The adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks the inflation rate by monitoring the prices of everyday goods and services like food, housing, and healthcare.
Since inflation affects the purchasing power of benefits, COLA helps ensure that Social Security recipients are able to meet their basic needs despite price increases.
COLA was first introduced in 1975 to protect retirees and other Social Security beneficiaries from inflation. The increase is determined by comparing the average CPI-W for the third quarter (July, August, and September) of the current year with the same period from the previous year.
If inflation has increased during this time, the Social Security Administration (SSA) will announce a COLA increase.
2025 COLA: Expected to be 2.5%
For 2025, the COLA increase is expected to be around 2.5%. This is a smaller increase compared to recent years, where beneficiaries saw higher adjustments due to soaring inflation. The smaller increase for 2025 reflects a stabilizing economy, as inflation has been cooling since its peak in 2021 and early 2022.
The official announcement of the COLA increase will be made by the SSA on October 10, 2024, based on third-quarter inflation data. Once announced, the new amounts will take effect in January 2025, and beneficiaries will see the updated amounts reflected in their Social Security payments.
How Will the 2025 COLA Affect Social Security Checks?
The 2025 COLA will result in an estimated average increase of about $49 per month, depending on the type of benefit and individual circumstances. Here’s how the increase will affect different Social Security benefits:
Old-Age Insurance: The average payment could increase from $1,872.09 to $1,918.89.
Survivor Benefits: The average could rise from $1,509.36 to $1,547.09.
Disability Insurance: Recipients may see an increase from $1,402.69 to $1,437.76.
Although this increase is lower than the 8.7% increase seen in 2023, it still helps beneficiaries keep up with inflation. For those relying heavily on Social Security, the adjustment is vital for maintaining their financial stability.
Why Is the 2025 COLA Increase Smaller?
The smaller 2.5% increase for 2025 reflects a decrease in inflation, which has slowed down compared to previous years. While inflation continues to impact the cost of living, the rate of price increases for goods and services has leveled off, resulting in a smaller adjustment for Social Security recipients.
However, this smaller increase might be challenging for some beneficiaries, especially if certain costs, such as healthcare or housing, continue to rise faster than inflation. For many retirees, Social Security is their primary income source, so a smaller increase could require careful budgeting and planning.
Checking Your New Social Security Benefit Amount
Once the COLA increase is officially announced, Social Security beneficiaries will be notified of their new payment amounts in December 2024.
You will receive a letter from the SSA with the updated information, or you can check your new payment amount online by logging into your My Social Security account. The increased amount will be reflected in your payments starting in January 2025.
While the 2025 COLA increase is expected to be smaller compared to recent years, it is still an important adjustment to help Social Security recipients keep up with the cost of living. The 2.5% increase will provide a much-needed boost for retirees and others who rely on Social Security, even as inflation slows down.
Beneficiaries should keep an eye on the upcoming announcement on October 10, 2024, and prepare for the new payments, which will start in January 2025. It’s also important to plan for any potential changes in expenses, particularly if healthcare and housing costs continue to rise.
