As 2024 draws to a close, the time to look at 2025 and how our budgets will work has come, especially for those who depend on Social Security benefits and are wondering how the new cost of living adjustment (COLA) will affect their finances for the new year.
Announced in October, the new COLA for 2025 is quite low, especially when compared to the figures of the last four adjustments, but it is worth mentioning that the 2,5% increase is a positive thing since it indicates that inflation has gone down and that the economy is stabilizing after the pandemic turned the world on its head. Just for comparison, the 2024 COLA was 3,2% and it was quickly surpassed by inflation during the first half of the year.
Given the dire situation of those on fixed income, the authorities made a concerted effort to lower inflation during the second half of the year, which resulted in the 2,5% increase that will be implemented.
The COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is an index provided by the Bureau of Labor Statistics that measures the monthly changes in prices of eight categories, Food and beverages, Housing, Apparel, Transportation, Medical care, Recreation, Education and communication and Other goods and services. The change in these categories is calculated into a percentage, and then, the percentages of the months of July, August and September are compared to the same index for the previous year. The difference between the percentages makes the COLA for the following year.
How the new COLA will affect Social Security benefits in 2025
There are approximately 72.5 million people across the country that receive Social Security benefits, about 50 million of those being retireemt benefits, so the increase in monthly checks will affect a lot of Americans come January 2025.
Martin O’Malley, Commissioner of Social Security released a statement after the announcement of the new COLA illustrating the impact that the increase will have on beneficiaries “Social Security benefits and SSI payments will increase in 2025, helping tens of millions of people keep up with expenses even as inflation has started to cool. Nearly 68 million Social Security beneficiaries will see a 2.5% cost-of-living adjustment (COLA) beginning in January 2025. Increased payments to nearly 7.5 million people receiving SSI will begin on December 31, 2024.(Note: Some people receive both Social Security benefits and SSI [Social Security Income]),” the statement detailed.
Changes that will be implanted other than the COLA
One of the main changes that the Social Security Administration (SSA) will implement in the new year is the simplification of the yearly notice that beneficiaries will be sent detailing how the COLA impacts their actual benefit.
Historically this document has been pages long and extremely detailed, but since most of the information is now available through the improved my Social Security account, the document will be “a newly designed and improved COLA notice that makes it easier for customers to find the information they need most. The simplified COLA notice is now only one page, uses plain and personalized language, and provides exact dates and dollar amounts of a person’s new benefit amount and any deductions.”
For those in need of more information, if they do not have an account, they should create one, as it will help them figure out not just the increase, but also other information they need to communicate to the SSA like martial status changes or changes od address as well as to receive any and all notifications without risk of it getting lost in the mail.
