People who get Social Security look forward to the Cost-of-Living Adjustment (COLA) every year because it helps them keep their benefits in line with inflation.
However, the COLA is not only used for Social Security benefits, as most people think. It is used for a number of government benefits as well.
But even though the COLA is supposed to help beneficiaries deal with rising costs, it does not always do enough to ease the financial stress that many people are under, especially when inflation is high.
What is the COLA and How Is It Calculated?
The COLA is a percentage increase that is added to Social Security benefits and other forms of government aid to help fight inflation. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to figure it out.
It tracks changes in the prices of eight types of life costs, such as housing, medical costs, food, and transportation. With the CPI-W, you can see how much these goods and services cost in July, August, and September of this year and compare that to the same months last year. The percentage that is found is then used to change the benefits.
The COLA increase for Social Security benefits in 2025 is set at 2.5%. This was set in October. Even though this may seem like a small increase, many people who will benefit are worried that it will not be enough to keep up with inflation, especially given how the economy is right now.
Challenges with the 2025 COLA Increase
Many people who get benefits from the COLA system have pointed out problems with it over the years, and these problems are still a big deal as we get closer to 2025.
1. Inflation Can Outpace COLA Increases
One of the main problems with the COLA is that inflation can easily rise faster than the changes, making them useless. This was clear in 2024, when inflation quickly rose faster than the 3.2% COLA increase in the first half of the year.
Because of what the Federal Reserve and the government have done, inflation has slowed down some, but the problem is still expected to last until 2025.
For example, the prices of groceries, housing, and transportation have kept going up. This means that the 2.5% COLA increase might not be enough to keep up with the rising cost of living.
2. The CPI-W Doesn’t Reflect Seniors’ True Expenses
The second issue with the COLA is that the CPI-W, which is used to figure out the COLA, is more typical of the spending habits of young professionals in cities than of seniors, disabled people, or people who are poor.
A bigger chunk of these groups’ incomes goes to housing and medical costs, which are also the two areas where prices have gone up the most in the last few years.
The Consumer Price Index for the Elderly (CPI-E) is another index that might be better for figuring out COLA for seniors. The CPI-E takes into account the fact that housing and medical costs are more important to older people and affect how much they spend.
In fact, the CPI-E often leads to a higher COLA than the CPI-W, which suggests that seniors would get a better raise if it were used to figure out their benefits.
3. Seniors on Fixed Income Struggle with Rising Costs
Another big problem is that people who get Social Security are on a fixed income, and the COLA increases do not always come in time to keep up with rising costs.
The changes are made after the prices have already gone up, which means that a lot of retirees have to use their savings or other government aid to make ends meet.
The problem is made worse by the fact that Social Security benefits are not meant to be saved; they are meant to cover basic living costs.
This makes it hard for many seniors to keep up a decent standard of living, especially those who live from paycheck to paycheck. Seniors with low incomes may find it hard to keep up with even small price increases in goods and services. Those with a lot of savings or investments may be able to weather the storm.
Other Benefits Tied to the COLA
The COLA is used by more than just Social Security to change the amount of benefits people receive. The Supplemental Nutrition Assistance Program (SNAP) is one of these programs. Its goal is to help people and families with low incomes buy food.
A lot of people who get Social Security can get SNAP. The amount of the benefits changes every year based on the COLA.
SNAP benefits will go up by the same amount as the 2.5% COLA in 2025. This means that a single person could get up to $292 in SNAP benefits, and a household with two people could get up to $536 in benefits.
Even with these changes, though, many seniors who are eligible still do not use SNAP to its fullest. The National Council on Aging says that about three fifths of seniors who are eligible are not taking advantage of the benefits they are entitled to. Seniors who want to help the poor should apply for these benefits because they can help with the rising cost of food.
Conclusion
It might look like the 2.5% COLA increase for Social Security benefits in 2025 is a good change, but it does not really help seniors and other beneficiaries deal with the problems they face because of rising prices.
The CPI-W, which is used to figure out the COLA, does not really show how seniors spend their money, since housing and medical care tend to be more expensive for them. As a result, many seniors are finding it hard to keep up with their costs of living despite these yearly increases.
Even though other government programs, like SNAP, also change based on the COLA, they do not always help low-income seniors enough. For people who depend on Social Security as their main source of income, the 2.5% increase in 2025 will probably not be enough to cover the rising costs of living.
Many retirees will always be struggling with how to make their fixed income go further because inflation is making their money worth less.
Going forward, lawmakers need to think of new ways to better meet the needs of seniors, like using the CPI-E to figure out COLA, as inflation and living costs continue to rise.
