Millions of Americans, particularly retirees, rely heavily on Social Security as a source of income. According to Gallup surveys, 80% to 90% of retirees rely on this program as a primary or secondary source of income. The Cost of Living Adjustment, or COLA, determines how much payments will increase each year.
The Social Security Administration (SSA) uses COLAs (Cost of Living Adjustments) to adjust benefits for inflation. The concept is straightforward: if the prices of products and services that older adults frequently purchase rise, COLA increases the benefits to ensure that they do not lose purchasing power.
What is COLA and why does it matter so much for Social Security?
Since 1975, COLA has been calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index calculates inflation by examining over 200 categories of spending.
However, the benefit increase is calculated using only data from the third quarter of each year (July to September). If the average CPI-W for the third quarter exceeds that of the previous year, benefits will rise by the same percentage, rounded to the nearest tenth.
In 2025, COLA will be 2.5%, which represents a more modest increase compared to recent years, but still above the historical average of 2.3% over the past 15 years.
How much money will beneficiaries receive on average?
Let’s put some numbers on the table to see how COLA affects them. According to SSA data, the average Social Security check for November 2024 was $1,788.12. With the 2.5% COLA increase, this amount will rise to $1,834.79 per month in 2025, representing an increase of approximately $44.75 per month, or slightly more than $22,000 per year.
However, be aware that not all beneficiaries receive the same amount. There are significant differences among retirees, people with disabilities, and survivors of deceased workers:
- Retirees: This group represents 75.6% of beneficiaries. The average check for a retiree will increase by $49, reaching $1,976 per month in 2025, or about $23,712 per year.
- People with disabilities: Around 7.24 million people in this group will see an increase of $38 in their monthly payments, reaching $1,580.
- Survivors: The 5.8 million survivors will also receive an average increase of $38, bringing their estimated monthly payment to $1,551.
What does this mean for beneficiaries?
Although the increase may appear insignificant, especially in light of rising inflation, every dollar counts for those who rely on Social Security to cover basic necessities like food, housing, and medications. COLA ensures that beneficiaries do not lose ground as the cost of living rises.
The challenge, however, is to maximize these advantages. There are some lesser-known strategies that could help you get more from Social Security in the future.
Did you know that with the right changes, you can boost your annual income by thousands of dollars? It’s worth looking into how to make the most of this valuable resource.
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