It’s hard to put a positive spin on next year’s benefits increase.
We’re slowly but surely getting closer to finding out what 2025’s Social Security cost-of-living adjustment (COLA) will amount to. Although that information won’t become available until October, annual COLAs are based on third-quarter inflation data. And we should very soon at least have data for July that makes it easier to estimate next year’s Social Security raise.
Unfortunately, though, 2025’s Social Security COLA is shaping up to be a bad-news situation, no matter how we look at it. And seniors may unfortunately be in for financial stress in any scenario that arrives.
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It’s a lose-lose situation
Initial estimates are calling for a 2025 Social Security COLA of 2.63%. That’s lower than the 3.2% COLA seniors received at the start of 2024.
Of course, that number could change quite a bit, depending on what inflation looks like in the coming months. But whether that number wiggles upward or downward, it’s bad news for seniors regardless.
A 2025 Social Security COLA that’s smaller than 2.63% will mean just that — a stingy raise that gives seniors limited options. But a larger 2025 COLA isn’t necessarily something to celebrate, either.
If next year’s COLA winds up being larger than the current 2.63% estimate, it’ll mean that inflation increased during the third quarter of the year. And rising inflation is not good for seniors on a limited income. In fact, a surge in inflation could be even more detrimental to Social Security recipients than a smaller COLA.
It’s best to not have to rely on COLAs in the first place
It’s unfortunate that many seniors are in a position where they’re dependent on annual Social Security COLAs to stay afloat. But if you’re not yet retired, you have an opportunity to avoid that situation by coming in with outside savings.
To be clear, you don’t necessarily need a $1 million nest egg. And most retirees aren’t sitting on anywhere close.
The median retirement savings balance among Americans aged 65 to 74 is $200,000, per the Federal Reserve. A cushion like that probably won’t have you vacationing in a high-end resort twice a year. But it could make it so you’re able to do things like pay the electric bill, buy eggs, and put gas in your car without having to stress.
That said, current retirees who are heavily reliant on Social Security aren’t necessarily doomed, either. If you’re healthy enough to work part-time, do it. Not only is it a great way to stay busy, but the extra income could give you more breathing room and make it so that a smaller COLA or a rise in inflation doesn’t upend your finances.
Plus, thanks to the gig economy, part-time work in retirement no longer has to mean sitting at a desk or working a cash register at a supermarket. You can pursue something creative, whether it’s art, music, or crafts. You could even shuttle passengers around in your car if you’re someone who doesn’t mind driving and enjoys making conversation.
Unfortunately, seniors are in for bad news in the context of 2025’s Social Security COLA, one way or another. Taking steps to secure outside income is the best way to cope with that scenario and avoid having it become a major source of financial aggravation.