Confirmed date when Social Security will announce the next increase in checks for retirees

Millions of Social Security recipients look forward to October every year, eager to learn how much their benefits will increase. This change, known as the Cost-of-Living Adjustment (COLA), is calculated and released annually by the Social Security Administration (SSA) to help beneficiaries maintain their purchasing power amidst inflation. For 2024, the SSA set the COLA at 3.2%, a figure some found disappointing, as rising living costs have outpaced this increase, straining many retirees’ budgets.

How the 2024 COLA Compares to Recent Years

The 2024 COLA of 3.2% fell short of matching current inflation rates, leaving many recipients feeling that their increased benefits do not fully cover essential costs. This discrepancy stems in part from the fact that inflation surged almost immediately after the COLA went into effect, resulting in a gap between rising expenses and Social Security increases.

Over the past five years, 2023 stands out as an exception, when a COLA of 8.7% provided meaningful relief against high inflation. According to The Senior Citizens League, a senior advocacy group, this was a rare instance when the COLA adjustment adequately reflected price hikes across the economy. This period of high inflation in 2023 allowed benefits to keep up with price increases, offering recipients a much-needed buffer that hasn’t always been consistent in other years.

How the COLA is Determined

Each year’s COLA is based on changes in an inflation index, specifically the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The SSA compares inflation rates from the third quarter of the current year to the same period of the previous year to calculate the COLA. The final figure, usually announced in October, often reflects predictions made earlier in the year based on observed inflation trends.

For 2025, early forecasts project a potential COLA increase of about 2.6%, according to Shannon Benton, executive director of The Senior Citizens League. Although this estimate could change based on inflation data for July through September 2024, a 2.6% increase may not cover all of the cost increases that seniors face.

The Financial Impact of Insufficient COLA Adjustments

When COLA adjustments don’t keep up with actual inflation, the purchasing power of Social Security benefits declines over time, adding financial pressure on beneficiaries. Benton emphasized that “household costs rose faster than the COLA last year, with food and housing leading the way.” This trend has pushed many seniors to draw on retirement savings sooner than planned, or even turn to credit cards, which can lead to mounting debt.

Such gaps have been especially challenging for retirees on fixed incomes, who rely heavily on Social Security to cover essentials like housing, food, and healthcare. The gap in purchasing power can accumulate annually when COLA increases are consistently lower than inflation, putting seniors in an increasingly vulnerable financial position.

Inflation Trends in 2024 and Their Impact on the 2025 COLA

As of mid-2024, inflation had settled to a 2.5% annual rate, marking a reduction from earlier highs, including 2.9% earlier in the year. This decline is a positive sign, especially as it approaches the Federal Reserve’s long-term inflation target of 2%. If this 2.5% rate holds, the SSA’s 2025 COLA could fall close to 2.6%, theoretically covering inflation but unlikely to restore prior years’ purchasing power lost to inflation.

For many seniors, a 2.6% COLA would provide some relief but may still leave gaps. Each year that inflation outpaces COLA adjustments, retirees face a reduced ability to meet everyday needs, which can force them to tap into savings or incur debt.

How Seniors Can Manage Financial Gaps Created by Low COLA Adjustments

With the possibility of another modest COLA adjustment in 2025, Social Security recipients may want to consider strategies for managing these financial gaps:

• Budget Adjustments: Reducing non-essential expenses and adjusting monthly budgets can help offset rising costs.
• Seeking Financial Assistance: Low-income seniors may qualify for state or federal assistance programs to help cover costs like medical expenses and food.
• Exploring Part-Time Work: If possible, some retirees choose part-time work to supplement their income.
• Using Savings and Retirement Accounts Strategically: Tapping into savings can help cover shortfalls, but using these funds carefully can prevent depletion.

Future Prospects for Social Security COLA Adjustments

If inflation remains moderate, as recent data suggests, future COLAs may continue to be relatively modest, leaving seniors to bridge the gap themselves. Advocacy for alternative Social Security adjustments, such as using the Consumer Price Index for the Elderly (CPI-E), which tracks senior-related expenses more closely, has gained traction. While these changes would require congressional action, they could better align COLA with the actual expenses seniors face, helping to protect their financial security.

The importance of COLA adjustments cannot be overstated for those dependent on Social Security benefits. While incremental increases offer temporary relief, they are often insufficient to address the ongoing pressures of rising living costs, prompting concerns over the sustainability of Social Security for future generations.