2025 COLA Sparks Major Changes Social Security Benefits to Experience Unprecedented Shifts

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The Bureau of Labor Statistics figures out the cost of living adjustment (COLA) every year. This tells Social Security how much more money they will get. So, for the more than 70 million people who depend on these benefits to pay their daily costs, learning more about this yearly increase is very important. Gallup has done surveys every year for the past 23 years to find out how much seniors rely on Social Security payments. Since 2002, 80% to 90% of respondents, including 88% in April 2024, have said that they need their Social Security payment to live.

The new COLA increase and how it will change payments for Social Security recipients

These poll results show that the most-anticipated news for retirement beneficiaries is the SSA’s yearly COLA announcement. We finally got the final percentage on October 10, after waiting for many months. However, the 2.5% COLA raise is much smaller than last year’s, so it’s not all good news for Social Security recipients in the coming year.

You may have heard about the cost of living adjustment (COLA) for weeks. It’s how the Social Security Administration (SSA) adjusts Social Security payments to reflect the effects of inflation. Think about a situation in which the costs of many different things and services go up by 3%. If Social Security payments didn’t go up, prices would keep going up, which would make it harder for retirees to buy things. In most years, COLA is the only “raise” that is passed along so that recipients don’t lose the ability to buy things.

From the time Social Security was created in 1935 until it ended in 1974, there was no good reason to change benefits. A lame-duck session of Congress passed the first COLA a little more than ten years after the first check for a retired worker was sent out in January 1940. A separate tool, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), has been used since 1975 to track changes in prices. This made it possible for cost-of-living changes to be made every year, which was a big step forward for America’s best retirement program.

How do you figure out the cost of living adjustment?

When Social Security figures out the COLA, it only looks at the last 12 months’ worth of numbers that end in the third quarter (July, August, and September). This is true even though the CPI-W is released every month. If the average Q3 CPI-W reading for this year is higher than it was for the same time last year, Social Security checks will go up. The rise that is given to people is equal to the percentage change in the average Q3 CPI-W readings from one year to the next, rounded to the nearest tenth of a percent.

In the 2010s, winners didn’t have much to look forward to. In the last fifty years, this decade had only three years of decline, which meant that no COLA was passed on (2010, 2011, and 2016). It also had the smallest positive COLA on record, at 0.3% in 2017. But there has been a big change in the tide in the last few years. When COVID-19 broke out, the U.S. money supply grew by the most each year. This caused the current inflation rate to reach its highest level in four decades. Beneficiaries got 5.9% more in 2022, 8.7% more in 2023, and 3.2% more in 2024. This was after a decade of mostly low COLAs.

The September inflation data was the last piece of the puzzle needed to figure out Social Security’s 2025 COLA. On October 10, the SSA announced that recipients’ monthly payments would go up by 2.5% in the next year. Even though this is the smallest rise in benefits in the last four years, it is still a gain that is above average. Cost-of-living changes have been more modest since 2010, with an average of 2.3%.

Mason Hart

Mason Hart is an experienced journalist specializing in current affairs and public policy. With a keen eye for detail and a passion for uncovering the truth, Mason provides insightful analysis and comprehensive coverage of pressing issues. His work aims to inform and engage readers, driving meaningful conversations in the community.

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