The implementation of the Social Security cost of living adjustment (COLA) for the year 2025 is about to become effective, which has generated interest in the beneficiary community about the financial impact of this change.
The Social Security Administration (SSA) has announced that the COLA for this period will be 2.5%, a figure that, although modest, represents an increase in the monthly payments of millions of American citizens. The benefits affected by these increments go from retirement to SSDI (disability) to SSI, for retirees, workers, disabled workers and surviving relatives.
Social Security Benefits Set to Increase: What You Need to Know for January 2025
This adjustment will impact approximately 72.5 million beneficiaries beginning in January 2025. This group includes those who receive retirement benefits, survivors, Social Security Disability Insurance, and those who receive Supplemental Security Income (SSI).
The purpose of the COLA is to ensure that beneficiaries maintain their purchasing power in the face of inflation, adjusting their benefits to reflect the increase in the cost of living. Although the 2.5% increase is lower than the 3.2% adjustment applied in 2024 and the significant 8.7% increase implemented in 2023, the new percentage suggests slowing trends in the inflation rate compared to previous years.
This decrease can be interpreted as a sign of a more stable economy, which is a favorable aspect for consumers in general. Social Security beneficiaries will receive an information notice in December detailing the cost-of-living adjustment applied to their benefits.
Those using the “My Social Security” online portal will be able to access this information in the Message Center upon login. This proactive approach by the Social Security Administration seeks to keep the population informed about changes in their benefits, ensuring adequate financial planning in the face of the imminent adjustment.
The Social Security Administration (SSA) provides benefits through various programs, such as Retirement, Survivors, and Disability Insurance (RSDI) and Supplemental Security Income (SSI). These initiatives are designed to provide financial support to millions of Americans each month, ensuring a consistent source of income and contributing to the well-being of beneficiaries.
Payments are distributed in five monthly rounds, scheduled as follows
First and Third of the Month: These dates are reserved for SSI beneficiaries, as well as those receiving early retirement, survivors, and disability payments, and also those retirees residing abroad.
Second, third, and fourth Wednesdays: On these dates, payments are made according to the beneficiary’s birthdate, dividing recipients into groups that receive funds on one of these specified Wednesdays.
Remember that the SSA recommends to wait up to 3 business days in case your benefits didn’t arrive on time. After that, you can contact the SSA by calling 1-800-772-1213, or visit your local office where the officials are gonna be more than happy to help you solve the problem.
How does the COLA affect the overall financial planning of Social Security beneficiaries?
The Cost-of-Living Adjustment (COLA) greatly affects Social Security beneficiaries’ financial planning in several ways:
COLA’s main goal is to keep Social Security benefits in line with inflation and rising prices. This helps beneficiaries maintain their standard of living in retirement by increasing benefits to counteract the effects of inflation.
COLAs are applied annually starting at age 62, even if benefits are not claimed until later. This means the adjustments compound over time, leading to a higher benefit amount for those who delay claiming Social Security. For example, waiting until age 70 to claim could result in a significantly higher COLA-adjusted benefit compared to claiming at 62.
Understanding how COLA affects benefits at different ages is key for retirement planning. Beneficiaries must weigh the tradeoff between claiming early at a reduced amount and delaying for a higher base benefit with compounded COLA increases.
Reliance on Social Security income: For many retirees, Social Security makes up a substantial portion of their retirement income. The average benefit only provides around $22,600 per year, while a comfortable retirement often requires over $75,000 annually. COLAs help close this gap to some degree, but additional retirement savings are usually needed.
Beneficiaries should factor in the annual COLA increases when projecting their Social Security income and overall retirement budget. While the adjustments help maintain purchasing power, they are fairly modest (2.5% for 2025). Retirees still need to plan for inflation’s impact on their expenses over a multi-decade retirement.