Retirees in the U.S. just got some unfortunate news. Impending COLA change, the Social Security Administration (SSA) has announced that the cost-of-living adjustment (COLA) for 2025 will be one of the lowest in years.
While COLA is meant to help seniors keep up with inflation, the new adjustment falls short. Many retirees might struggle to cover rising costs, starting as early as February. Here’s what you need to know and how this change could affect your finances.
What’s Impending COLA Change?
Since 1975, Social Security benefits have been adjusted based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the cost of essentials like food, housing, and transportation. Ideally, COLA ensures that Social Security payments keep up with inflation.
For 2025, the COLA increase is 2.5%. The calculation is based on inflation data from July to September 2024. At first glance, this may seem fair. However, inflation continued rising after September, meaning the COLA increase doesn’t fully reflect current cost trends.
Why This COLA Increase Isn’t Enough?
In 2024, inflation started picking up speed toward the end of the year. The CPI-W rose from 2.2% in September to 2.8% in December. Since the COLA calculation only considers inflation data from the third quarter, it missed the price increases that came later in the year.
This means retirees will feel the impact of rising costs without enough of a boost in benefits to compensate. By February, many seniors may find their money isn’t stretching as far as expected.
How Inflation is Shrinking Retirees’ Buying Power?
Over the past two years, a consistent gap has existed between COLA increases and actual inflation. In 2023, inflation reached 3.8%, yet Social Security benefits only increased by 3.2%. If adjustments had truly kept up with inflation, benefits would have risen by 6.8% over two years instead of just 5.8%.
For an average retiree receiving $1,905 per month, this difference adds up. They are effectively missing out on an additional $228 per year. While that may not seem like a huge amount, it adds up over time, especially for those relying on Social Security as their primary income, also check these steps to make before retiring in 2025.
Here’s a quick look at how COLA increases have compared to actual inflation:
| Year | Inflation Rate | COLA Increase | Gap |
| 2023 | 3.8% | 3.2% | -0.6% |
| 2024 | 2.9% | 2.5% | -0.4% |
| 2025 | Projected 2.9% | 2.5% | -0.4% |
The Bigger Problem with COLA Adjustments
One major issue with Social Security adjustments is that they react to inflation rather than predict it. By the time an adjustment is made, inflation has often changed, leaving retirees struggling to keep up.
This creates a long-term problem where seniors are always playing catch-up with inflation, slowly losing purchasing power year after year. If inflation continues to rise in 2025, retirees will likely feel an even bigger strain on their budgets.
What Can Retirees Do to Cope?
Since Social Security alone may not be enough to keep up with costs, retirees may need to explore additional sources of income. Here are a few options:
- Withdraw from savings wisely – Consider tapping into retirement accounts strategically to avoid running out of funds too soon.
- Sell investments carefully – Stocks and other investments can provide extra money, but timing is key to avoiding losses.
- Consider high-yield savings accounts – With interest rates on the rise, moving funds into accounts with better returns could help offset inflation.
- Explore part-time work – Even a small income boost can make a big difference in covering monthly expenses.
FAQs About Impending COLA Change
1. Why is the 2025 COLA increase lower than expected?
The calculation is based on inflation data from July to September 2024. However, inflation continued rising after that period, meaning the adjustment doesn’t fully reflect real-world cost increases.
2. Will the 2025 COLA be enough to cover inflation?
Not entirely. Inflation for 2024 is expected to be around 2.9%, while COLA is only 2.5%. This means retirees may see a slight decline in their buying power.
3. What can retirees do to manage rising costs?
Options include withdrawing from savings carefully, investing in high-yield accounts, selling investments strategically, or even considering part-time work to supplement income.
Final Thoughts Impending COLA Change
The 2025 COLA adjustment is falling short of what retirees truly need. While a 2.5% increase might sound reasonable, it doesn’t fully account for rising costs. Many seniors will feel the squeeze starting in February.
While there’s no perfect solution, retirees should be proactive in managing their finances. Exploring savings, investments, and additional income sources can help offset some of the challenges caused by insufficient COLA adjustments.