As the holiday season approaches and the new year draws closer, many retirees and public assistance recipients are looking ahead to the financial changes that January 2025 will bring. One key change to watch for is the new cost of living adjustment (COLA) to Social Security benefits, which will start in January and help those receiving benefits keep up with inflation.
But with ongoing concerns about inflation outpacing the adjustment, understanding how this will affect your finances is more important than ever.
Social Security’s New COLA for 2025
On October 10, the Social Security Administration (SSA) announced that it would apply a 2.5% COLA increase to all benefit checks starting in January 2025. This annual adjustment is meant to help benefits keep up with rising prices and ensure that beneficiaries can maintain their purchasing power.
The COLA applies to several programs managed by the SSA, including retirement, survivor benefits, Social Security Disability Insurance (SSDI), and Supplemental Security Income (SSI). Regardless of the amount of each check, all recipients will see the same percentage increase.
While this announcement provides some relief, many are disappointed that the COLA increase is lower than it has been in recent years. Furthermore, the 2024 COLA increase was quickly outpaced by inflation in the first quarter of the year, leaving many beneficiaries feeling as though their benefits were not enough to cover rising costs.
How Is the Social Security COLA Calculated?
The SSA calculates the COLA every year based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks the average change in prices for goods and services. However, this method has raised concerns among senior advocates because the index mainly reflects the spending habits of younger professionals, not older adults who rely heavily on fixed incomes.
Shannon Benton, the Executive Director of the Senior Citizens League (TSCL), highlighted the issue in a recent statement. “Our research shows that 67% of seniors depend on Social Security for more than half their income, and 62% worry their retirement income won’t even cover essentials like groceries and medical bills,” Benton said.
A recent survey of 3,000 older Americans found that 72% believe the COLA calculation should be adjusted to better reflect the needs of seniors. Many advocates have suggested switching to the Consumer Price Index for the Elderly (CPI-E), which places more emphasis on the expenses older adults face, such as healthcare and housing. This adjustment could help seniors receive a more accurate cost-of-living increase.
The Push for a More Accurate COLA Calculation
While the CPI-W method is not ideal for seniors, using the CPI-E could be a solution. The CPI-E uses similar data as the CPI-W but weighs the expenses of people over 62 more heavily. This could provide a more accurate reflection of how much costs are rising for seniors, as they tend to spend more on healthcare, housing, and other essentials.
Despite this, many Americans in need of government assistance share similar concerns about rising costs, and using a more accurate measure like the CPI-E could help all vulnerable groups.
By adopting this method, the government could provide more adequate support to seniors and others who rely on Social Security and related programs.
What This Means for Social Security Recipients
If you’re unsure how the new COLA will affect your Social Security benefits, don’t worry. The SSA will soon send out notices explaining the new adjustments and how they will impact individual benefits. If you already have an online Social Security account, you will also be able to view the notice online.
Other Government Programs Affected by COLA
It’s important to note that the COLA adjustment isn’t just limited to Social Security benefits. Other government programs, including Medicare and Supplemental Nutrition Assistance Program (SNAP) benefits, also use the COLA to calculate increases for recipients.
This makes COLA one of the most important metrics for people who depend on government assistance, as it affects various programs that help with healthcare and food costs.
Conclusion
While the 2.5% COLA increase in 2025 may not be as large as some had hoped, it still provides essential relief for seniors, retirees, and people receiving disability benefits. As inflation continues to challenge purchasing power, there are ongoing efforts to make the COLA calculation more reflective of the needs of older Americans.
For now, it’s important to stay informed about these changes, and if you’re receiving Social Security or other government benefits, keep an eye out for official notices explaining the adjustments.
Note: Every piece of content is rigorously reviewed by our team of experienced writers and editors to ensure its accuracy. Our writers use credible sources and adhere to strict fact-checking protocols to verify all claims and data before publication. If an error is identified, we promptly correct it and strive for transparency in all updates.
