The Social Security Administration (SSA) has announced the Cost-of-Living Adjustment (COLA) for 2025. This means that monthly benefits will go up by 2.5%.
This change is supposed to help beneficiaries keep up with inflation, but many are unhappy because they think the increase is not enough to cover their rising living costs.
For retired people, Social Security benefits are a very important source of income—they make up about 30% of their income.
But the small COLA increase makes a lot of people worry about their financial security. Here is an overview of the 2025 COLA, what it means, and how you can protect your retirement.
Cost of Living Information (COLA) for 2025
- The 2025 COLA is set at 2.5%, slightly below the 20-year average of 2.6%.
- The new increase will take effect starting January 1, 2025.
- A retiree receiving the average monthly benefit of $1,922 will see a $48 monthly increase, or approximately $577 annually.
Historical Cola increases
Here’s a quick overview of past COLA adjustments:
- 2015: 1.70%
- 2016: 0%
- 2017: 0.30%
- 2018: 2%
- 2019: 2.80%
- 2020: 1.60%
- 2021: 1.30%
- 2022: 5.90%
- 2023: 8.70%
- 2024: 3.20%
The Motley Fool says that many beneficiaries still say the increase is not enough to keep up with inflation, even after the changes. A recent poll found that 54% of retirees think the 2.5% increase is not enough, and 31% think it is not enough at all.
Improving Income Security during retirement
Because Social Security benefits might not cover all of your living costs, it is important to have more than one source of income. Here are some useful options:
- Working part-time to supplement income while staying active.
- Investing in stocks, bonds, or mutual funds for additional returns.
- Earning rental income from owned properties.
- Using savings accounts or certificates of deposit (CDs) for steady returns.
- Leveraging employer pensions if available.
- Considering reverse mortgages for additional liquidity.
Challenges of cola calculations
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to figure out the COLA, but it does not fully show how seniors spend their money.
The Consumer Price Index for the Elderly (CPI-E) is what experts recommend because it focuses more on medical costs, which are a big expense for retirees.
Tips to manage financial challenges
- Evaluate your spending and identify areas to cut back, such as switching to more affordable services or downsizing your home.
- Explore opportunities for additional income through freelance or part-time work.
- Plan strategically by maximizing savings and diversifying income streams to ensure long-term financial stability.
Living costs and inflation are going up, so relying only on Social Security might not be enough to keep up a comfortable standard of living. To make your retirement more secure and stable, you can take steps to improve your financial situation.
