With the 2025 cost-of-living adjustment (COLA) set at a modest 2.5%, a significant number of American retirees are reconsidering their retirement plans. Recent survey data from The Motley Fool, which polled 2,000 retirees, reveals that half of retired Americans are now considering rejoining the workforce. This response comes amid rising concerns that Social Security benefits may not be enough to maintain a comfortable standard of living.
How the COLA Affects Social Security Benefits
Social Security benefits, essential for tens of millions of retirees, disabled individuals, and surviving family members, are adjusted each year based on the COLA. This adjustment is determined by averaging the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter compared to the same period the previous year. Once calculated, the COLA is rounded to the nearest tenth of a percent. However, this year’s 2.5% COLA falls short of recent adjustments—8.7% in 2023 and 3.2% in 2024, which were higher due to record inflation levels.
While 2025’s increase will mean a small bump in Social Security checks, many retirees believe it’s insufficient. In fact, the Motley Fool survey found that 54% of seniors view the latest COLA as inadequate, reflecting a significant divide between the actual cost of living and the support that Social Security offers.
Rising Living Costs Outpace Social Security Benefits
The average monthly Social Security benefit will rise slightly in 2024 to $1,907, yet this amount does not cover the average monthly spending of $5,070 reported by Americans aged 65 and older. The shortfall highlights the growing financial strain on seniors who lack significant retirement savings or alternative income sources. In 2022, only 54% of American households had retirement accounts, leaving many retirees heavily dependent on Social Security alone.
A large portion of retirees now see working part-time or full-time as a solution to make ends meet. The survey showed that 28% of respondents rely exclusively on Social Security, while another 32% depend on it for a significant share of their income. For many, reentering the workforce provides financial security as well as an opportunity for a purposeful daily routine or a chance to give back through charitable work.
Examining the COLA Calculation: CPI-W vs. CPI-E
One of the reasons many retirees find the COLA insufficient is because it is based on the CPI-W, which does not always reflect the spending patterns of older Americans. The Senior Citizens League (TSCL), a nonpartisan group advocating for senior citizens, argues that the CPI-W’s limited scope fails to capture essential expenses unique to seniors, such as higher healthcare and housing costs. According to TSCL, Social Security benefits in 2024 are worth only 80 cents on the dollar compared to 2010 due to COLA’s reliance on CPI-W rather than CPI-E, an index that tracks spending for Americans aged 62 and older.
The TSCL is pushing for Congress to switch COLA calculations from CPI-W to CPI-E and to establish a minimum COLA of 3% to better reflect inflationary pressures affecting seniors. Shannon Benton, TSCL’s executive director, notes that adopting CPI-E would more accurately account for the evolving spending habits of seniors, ensuring that Social Security benefits maintain their purchasing power over time.
The Broader Financial Impact on Seniors
The financial stress stemming from rising costs and modest COLA increases extends beyond a basic inability to meet monthly expenses. According to TSCL, 67% of seniors rely on Social Security for more than half of their income, while 62% express concern that their income won’t cover essential expenses like food and medical bills. These findings underscore the need for more robust COLA adjustments to protect seniors’ financial security.
The gap between Social Security benefits and rising expenses may prompt more retirees to seek employment, not just for added income but to alleviate anxiety over financial insecurity. For many, this step is essential to maintaining a quality of life that Social Security alone can no longer sustain.
Calls for Legislative Action
Retirees, advocates, and organizations like TSCL are urging Congress to make meaningful adjustments to Social Security to improve COLA calculations and protect seniors’ financial well-being. Proposed reforms include switching to the CPI-E for calculating COLA and introducing a minimum annual increase of 3%, ensuring that Social Security benefits keep pace with inflation. By addressing the limitations of the current COLA structure, policymakers could help ensure that Americans can retire with dignity.
Why is the 2025 COLA lower than in previous years?
The 2025 COLA is set at 2.5% because inflation has recently decreased compared to the last two years, impacting the Consumer Price Index used to determine the annual increase.
How is the COLA calculated?
The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks changes in prices over a designated period, though some believe the CPI-E would better reflect retirees’ needs.
Can Social Security alone support retirees?
No, Social Security is typically only designed to replace a portion of pre-retirement income. Many retirees supplement it with savings, pensions, or part-time work to meet their financial needs.
