The upcoming cost-of-living adjustment is truly a mixed bag.
If you’re someone who gets the majority of your retirement income from Social Security, then you may be eager to find out how much of a raise you’ll be getting come 2025. Unfortunately, you’re going to have to sit tight a bit longer.
The Social Security Administration won’t be able to announce an official 2025 Social Security cost-of-living adjustment, or COLA, until October 10. That’s because those COLAs are calculated based on third-quarter inflation data. And since the third quarter of the year isn’t over, it’s too soon to have a 100% accurate number.
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However, there are estimates available for next year’s Social Security COLA based on the inflation readings that are available to date. And the most recent projection puts 2025’s raise at 2.5%.
That’s not the best news.
Not only is a 2.5% raise pretty mild to begin with, but it’s also the smallest COLA to arrive since 2021. In fact, Social Security recipients have gotten generous COLAs since inflation started surging in 2021, so a 2.5% increase might seem even more minimal.
But while you may not be happy to hear that your 2025 Social Security COLA might top out at 2.5%, there’s a silver lining you should recognize.
Smaller COLAs go hand-in-hand with lower living costs
Social Security COLAs are based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers from one year to the next. When inflation soars, Social Security benefits tend to get a large increase. When inflation moderates, benefits don’t go up as much.
The latter scenario is what seniors are looking at for 2025. But the reason a 2.5% Social Security COLA isn’t so terrible is simple: It’s an indication that living costs aren’t rising at such a rapid pace.
Here’s another way to look at it. You may have seen your Social Security benefits increase considerably more in recent years. But you were probably also looking at higher prices at the supermarket, pump, and just about everywhere else.
Now that inflation is cooling off, you may end up spending less on those and other essential expenses. So, all told, things really should even out.
It’s best to have income outside of Social Security
A big reason so many seniors may be panicking over a modest Social Security COLA for 2025 is that they don’t have savings, and they rely on those benefits to cover their expenses in full. But that’s a pretty scary way to live.
If you’re retired and in that boat, joining the gig economy could be an effective way to put more money in your pocket and help you build cash reserves. That way, you have a cushion for unplanned bills or surges in inflation that take place before your Social Security benefits get an opportunity to catch up.
But if you’re not yet retired, let current seniors’ stress over their Social Security COLAs serve as a wake-up call that you don’t want to end up in a position where you rely on a yearly increase in your benefits to make ends meet. Instead, save as best as you can during your working years so you’re able to supplement your Social Security income nicely. If you end up with a decent-sized nest egg, you won’t have to spend a good part of each year in retirement worrying about what the following year’s COLA will come to.