Everyone who gets a monthly Social Security check starting in 2025 will get a cost-of-living adjustment (COLA) of 2.5%. This includes the 1.5 million people who live in Arizona and get Social Security.
This will make the average monthly payment almost $48 higher. At the moment, the average amount is around $1,920. The new inflation rate was made public by the Social Security Administration on October 10.
COLAs are not popular outside of Social Security benefits. They help people keep up with the rising costs of things like food, housing, transportation, and other necessities.
How does inflation affect the COLA and Social Security check increases?
The Social Security Administration says that these yearly benefit raises are meant to make up for the fact that inflation hurts fixed-income plans. People who get Supplemental Security Income (SSI) and are disabled and mostly poor can also get the raise.
They will be given to about 68 million Americans who get retirement benefits and 7.5 million Americans who get SSI benefits. And because some people get both payments, the Social Security Administration says that 72.5 million people will be affected.
The COLAs for Social Security are based on the CPI-W, which is a measure of inflation, going up from one year’s third quarter to the next.
The CPI-W went up by 2.5% from July to September 2023 compared to July to September of this year, according to the most current report from the Bureau of Labor Statistics.
It is important to know that the CPI-W, which stands for the Consumer Price Index for Urban Wage Earners and Clerical Workers, is not the same as the Consumer Price Index for All Urban Consumers (CPI-U), which is another commonly used measure of inflation.
How has inflation changed in the past few months?
A lot of Americans are having a hard time making ends meet, but COLAs have also gone down over the past few years as inflation has gone down. The cost of living adjustment (COLA) that was planned for 2023 and was due this year was 3.2%.
It came after the biggest COLA increase in history, which was 8.7% in 2022. Prices change over time, not how cheap or expensive people think they are, which is what inflation rates.
Lisa Featherngill, national head of asset planning at Comerica Asset Management, says that 2.5% may seem like a small number, but it has been the same for the past 20 years.
CEO of AARP Jo Ann Jenkins says that 40% of older Americans depend on it as their main source of income. COLAs are important for these people because they make sure they will have “an inflation-protected source of income in retirement,” as the speaker put it.
Fothergill thinks that right now is a great time to look at your cash coming in and going out, especially before the stress of holiday shopping starts.
She gave examples of things like car insurance, cable TV, and home insurance that you could cut back on or shop around for. She said that planning apps like Credit Karma or Quicken might be helpful.
Will the COLA impact the future of the Social Security system?
Because the Social Security trust funds are running out, it is important to remember that the cost of living adjustment (COLA) will affect how much your Social Security check grows in the future.
It is expected that Social Security will reach its limit in 2033. At that point, payments could drop from what they are now to 79 cents on the dollar.
Congress can make the program stronger by either cutting benefits or raising taxes, or by doing both at the same time. However, leaders have not yet shown that they are willing to make these tough choices.
The presidential prospects, Donald Trump and Kamala Harris, have both promised to protect Social Security, but neither has come up with a solid plan to do so, according to the Committee for a Responsible Federal Budget.
The group said that Trump’s plan to stop partly taxing Social Security payments would hurt the money available for the program. There will likely be no more money in the Social Security trust fund after 2033 if nothing is done.
At that point, payments will be cut by 21%. The committee thinks that a normal two-income couple retiring at that time would see their annual benefits cut by $16,500.
