Millions of Americans, particularly pensioners, 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, decides 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 things and services that older persons 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 areas of consumption.
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 surpasses that of the previous year, benefits will rise by the same amount, rounded to the closest tenth.
COLA in 2025 will be 2.5%, a more modest increase than in recent years but still higher than the historical average of 2.3% over the last 15 years
How much money will beneficiaries receive on average?
Let’s place some figures on the table to see how COLA affects them. According to SSA data, the average Social Security payout for November 2024 was $1,788.12. With the 2.5% COLA increase, this sum will climb to $1,834.79 per month in 2025, representing an increase of around $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 considerable differences among retirees, persons with impairments, and survivors of dead workers.
Retirees account for 75.6% of recipients. In 2025, the typical retiree’s payout will be $1,976 per month, or $23,712 per year, up $49 from today.
People with disabilities: Approximately 7.24 million people in this group will see a $38 rise in monthly benefits, totaling $1,580.
Survivors: The 5.8 million survivors will also have an average $38 rise, bringing their monthly benefit 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 people who rely on Social Security to meet basic necessities like food, housing, and medications. COLA ensures that beneficiaries do not lose ground when the cost of living rises.
The issue, however, is to exploit these advantages. There are several lesser-known tactics that could help you collect more from Social Security in the future.
Did you know that with the correct changes, you can boost your annual income by thousands of dollars? It’s worth looking into ways to make the most of this valuable resource.