On October 10, the Social Security Administration announced that the cost of living adjustment (COLA) increase will be 2.5% in 2025.
That’s probably bad news for retirees who have experienced significant COLA increases in recent years. COLA growth rate in 2024 was 3.2%.
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Chris Orestis, certified senior advisor and president of Retirement Genius, says retirees need to know about upcoming COLA increases.
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There is a silver lining to the slight increase
The Social Security Administration tracks the Consumer Price Index (CPI) annually to measure the impact of inflation on beneficiaries.
“COLA growth over the past three years is among the highest in more than 40 years as the country has grappled with a post-COVID-19 inflation spike,” Orettis said.
“The bad news is good news when it comes to COLAs. This increase will be much smaller, reflecting the fact that inflation is under control and is now below 2%.”
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COLA is not a “price increase”
Orestis said it’s important to keep in mind the true purpose of the annual COLA.
“The COLA increase is not intended to be a ‘raise’ to beneficiaries,” he said. “This is intended to be an income adjustment to reflect the economic situation at the time.
“The U.S. economy is currently doing very well with inflation under control, which means people living on a fixed income from Social Security will have more purchasing power in their lives.”
Any cola is better than nothing
2.5% may seem small given that COLAs have increased significantly over the years, but there were also years when COLAs did not increase.
“COLA doesn’t happen automatically, and some years it doesn’t happen at all,” Oretis said. “With inflation now down to less than 2%, the 2025 COLA should be in the right range to maintain the cost of living, which is important for seniors on Social Security.
“Once you choose to start receiving monthly benefits, the amount you receive is fixed for life,” he added. “COLA adjustments are the only opportunity people have to see their monthly benefits increase.”
Create next year’s budget now
With the Social Security Administration announcing COLA increases for 2025, retirees should start planning their budgets based on the new benefit amounts.
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“People who rely on Social Security in retirement need to live within a budget and manage their money wisely,” Oretis says. “You need to plan your monthly budget knowing that your COLA increase (2.5%) is coming up.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Counselor: 4 Things Retirees Should Know About the 2025 COLA
