With a little over a month left until Christmas and the New Year, many retirees and beneficiaries of public assistance are starting to look to the future and plan how the 2025 cost of living increase (COLA) they will receive in January will help their finances and Social Security checks. The adjustment happens every year, but since the situation has evolved drastically, especially since the pandemic, evaluating the situation will be important in order to make the best possible choices.
Announced in October 10, the Social Security Administration (SSA) will apply the 2,5% COLA to all their benefits checks starting January 2025. This will help the checks keep up with inflation and beneficiaries maintain their purchasing power through time. The SSA is responsible for administering five programs, including retirement, survivors, Social Security Disability Insurance and Supplement Security Income, and they will all receive the same percentage of adjustment regardless of the amount in the check.
This adjustment has been disappointing for must, especially since it is lower than it has been for the past few years, and with the added grievance that the 2024 COLA was quickly surpassed by inflation in the first quarter if the year, rendering the COLA useless. Fears of this happening again have not helped beneficiaries feel confident in their new increased benefit.
How is the Social Security COLA calculated?
The SSA determines the COLA every year using the Consumer Price Index for Urban Wage Earners and Clerical Workers, a measure of the average change in prices for consumer goods and services, released monthly by the Bureau of Labor Statistics. This has proven to be problematic, especially by senior advocates, as this index is clearly weighed towards the needs of young professionals, and since the majority of recipients are seniors, this does not accurately account for their needs and expenses.
As TSCL Executive Director Shannon Benton said in a statement regarding the latest COLA announcement. “Our research shows that 67% of seniors depend on Social Security for more than half their income and that 62 percent worry their retirement income won’t even cover essentials like groceries and medical bills.”
The league also reported in a recent survey of 3,000 older Americans, that 72% of those questioned stated that changing the calculation to an index that better reflects seniors’ changing costs should be a top priority for Congress.
There have been a few solutions proposed, but one of the most popular and logical ones is the use of the CPI-E, which is the same index as the CPI-W and uses the same metrics, but weights them towards the needs and expenses of those over 62, given higher value to expenses like healthcare and housing.
Even though this might seem unfair, the reality is that almost everyone that is in a vulnerable situation and needs government assistance shares the same concerns, and since the CPI-E has consistently bee proven to be a higher adjustment, using it could increase benefits across the board and help all beneficiaries, not just seniors.
For those that have not calculated their benefits independently, do not worry, the SSA will send out notices soon explaining the adjustment and the impact on your particular benefits. If you already have a my Social Security Account, the notice will be posted online too.
Which government benefits make adjustments using COLA?
Contrary to popular belief, the SSA is not the only government agency that uses the COLA to adjust benefits, the metric is also used to calculate Medicare and Supplemental Nutrition Assistance Program (including food stamps and other programs) increases for those who qualify, making it one of the most versatile metrics beneficiaries need to be aware of.