Even though inflation has gone down a lot in the past year, many Social Security recipients, especially retirees, are still having a hard time keeping up with the price increases caused by the pandemic.
More than two-thirds of retired workers think they have saved enough money to live easily in retirement. On the other hand, only three quarters of retired workers think they need to cut back on spending a lot to keep up with inflation.
These facts come from the 2024 Retirement Confidence Survey by Greenwald Research and the Employee Benefit Research Institute.
A lot of seniors are looking forward to the 2025 cost-of-living adjustment (COLA) for Social Security. They think that the higher income will help them out financially.
But the Senior Citizens League recently lowered its COLA prediction to 2.5%, which would be the smallest pay rise for retired workers in four years. Sorry to say, there is more bad news.
Even though the 2025 COLA will not be finalised until later this week (the announcement is set for October 10), the Social Security Administration is likely to understate inflation. This will cause benefits to lose their buying power.
COLA calculation method has several problems that need to be addressed
Annual cost-of-living adjustments (COLAs) in Social Security are meant to protect the spending power of benefits by making sure that payments rise at the same rate as inflation.
A part of the Consumer Price Index called the Consumer Price Index for Urban Wage Earners and Clerical Workers is used to track inflation in this way. The maths is easy to understand.
Divide the average CPI-W reading for the third quarter of this year (July through September) by the average reading for the third quarter of last year. This rise in percentage is called the COLA the following year.
In the third quarter of 2023, the average CPI-W went up 3.2%, which meant that Social Security payments went up by 3.2% in 2024. One problem with that plan is that the CPI-W measures inflation by looking at how young adults who are working spend their money.
But the way they spend their Social Security is usually different from how old workers spend theirs.
For retired workers, for example, the CPI-W overstates how important child care, schooling, and transportation are while understating how important housing and health care are.
Mary Johnson, an independent Social Security policy expert who used to work for The Senior Citizens League, says that the CPI-W does not take into account how disabled and retired people aged 62 and up spend their money.
This is a problem because prices tend to rise faster in the spending areas that are most important to retirees. This means that, from their point of view, the CPI-W tends to understate inflation.
Because of the bad news, seniors should keep their budgets in good shape.
Aside from that, people who want to make extra money could look into certificates of deposit (CDs) or high-yield savings accounts. Even though rates are going down, they are still higher than the average over the last 20 years.
Social Security confirmed the official cost of living adjustment for 2025
After a long wait, the Social Security Administration has finally confirmed that the COLA will go up by 2.5% in 2025. This is in line with what financial experts and the Senior Citizens League have been saying recently.
People who are retired, have lost a spouse or partner, are disabled, or receive Supplemental Security Income (SSI) will get the following amounts starting in January 2025:
| Retirement benefits (including 2.5% COLA) | Survivor benefits (including 2.5% COLA) | SSDI benefits (including 2.5% COLA) | SSI benefits (including 2.5% COLA) |
| On average: $1,948
Age 62: $2,778 Age 67: $3,918 Age 70: $4,995 |
On average: $1,543
Individual: $1,817 2 Children: $3,744 |
On average: $1,575
Blind recipients: $2,655 Maximum payment: $3,918 |
On average: $715
Individuals: $967 Couples: $1,450 Essential person: $484 |
Also see:-Increase in VA Benefits after COLA Announcement – This is what you will receive in 2025
