Social Security recipients are waiting with bated breath for the Social Security Administration to reveal their part of what is annually touted as a cost-of-living adjustment—finally, a little bump! Initial preliminary estimates suggest a 2.57% boost for 2025, still less than the rise to come in of around 3. So, what could this mean for those about to retire?
Understanding the COLA
The COLA is an automatic increase in Social Security benefits that protects beneficiaries from losing purchasing power to inflation. The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as of quarters 3-2. This change is based on the annual average inflation rate from July through August to September.
In 2025, the Senior Citizens League—an advocacy group called it at a bump of just 2.57%. That would be an additional $47 a month for the average retiree, who receives about $1,840 per check. But that does not account for any increase in Medicare Part B premiums.
Why a Lower Estimate?
After the sharp price increases of 2021 and 19, inflation cooled slightly. COLA adjustments moderate with inflation. The continued inflation rate will be released in October 2024, the final COLA figure.
Timing Retirement and COLA
If you want to retire the day before the COLA is announced, go for it. Benefits already have an automatic cost of living adjustment applied if you are at least age 62, even without filing for Social Security benefits. COLAs will be taken into your retirement either way.
Impact on Retirees’ Budgets
COLA boosts benefits for 2019, but retirees still face higher costs. Medicare Part B Premiums: Medicare said the cost for…OFFSET: Should Medicare Part B premiums rise to $185 per month in 2024, up from $174?
Moreover, the Social Security benefits of numerous retirees will be taxable to the extent that a given taxpayer’s combined income exceeds certain levels. This can ultimately reduce the number they receive even further.
Inflation and Its Effect on Retirees
For those on fixed income, inflation remains a great concern. A survey by the Senior Citizens League found that 71% of seniors fear they will run out of savings in retirement because inflation prices refuse to go down, with a full 78% saying their monthly costs for housing, food, and medicine have increased.
That has helped in recent times as higher COLA adjustments, but they kick in only once a year, which one press officer said can leave retirees feeling behind the pace of inflation.
Case Study: Detroit Retirees
The retirees in Detroit were a special case. City bankruptcy wiped out the 2.25% COLA for those under legacy GRS, starting in 2014. But there is a plan to pay these retirees a one-time (very lumpy) sum, as it speaks volumes for the difference in retiree experience around the nation.
Looking Ahead
The agency defined the 2.57% COLA for 2025 as relatively tame compared to recent years but marked by a cooling inflation climate. Here are some of the adjustments that retirees should be aware of so they can plan accordingly to help keep their finances on track next year.
