As 2024 ends, many Americans who rely on Social Security benefits are turning their attention to the new Cost-of-Living Adjustment (COLA) for 2025 and how it will affect their finances. The Social Security Administration (SSA) announced in October that the COLA for 2025 will be 2.5%. While lower than the last four adjustments, the increase reflects a positive trend of cooling inflation and economic stabilization post-pandemic.
For context, the COLA for 2024 was 3.2%, but rising inflation during the first half of the year outpaced the adjustment, putting financial pressure on beneficiaries. However, targeted efforts to curb inflation in the latter half of 2024 have resulted in this more modest 2.5% increase for 2025.
How the COLA Is Determined
The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a metric from the Bureau of Labor Statistics. The CPI-W tracks monthly price changes in eight major categories:
• Food and Beverages
• Housing
• Apparel
• Transportation
• Medical Care
• Recreation
• Education and Communication
• Other Goods and Services
The SSA calculates the COLA by comparing the average CPI-W for July, August, and September of the current year to the same period from the previous year. The percentage difference becomes the COLA for the upcoming year.
What the 2.5% COLA Means for Beneficiaries
The new COLA will impact around 72.5 million Americans receiving Social Security benefits, including 50 million retirees. Starting January 2025, monthly payments will reflect this 2.5% increase.
Martin O’Malley, the Commissioner of Social Security, highlighted the importance of the adjustment, stating:
“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 beginning in January 2025. Increased payments to nearly 7.5 million people receiving SSI will begin on December 31, 2024.”
Key Changes Beyond the COLA
In addition to the COLA increase, the SSA will introduce an updated notice system in 2025 to improve communication with beneficiaries. Historically, the annual notice explaining how the COLA affects individual benefits was lengthy and overly detailed. However, with much of this information now accessible through the enhanced my Social Security online accounts, the SSA has simplified the document.
The new one-page COLA notice will:
• Use plain, personalized language.
• Clearly state the exact benefit amounts and deductions.
• Include critical dates for beneficiaries.
The Benefits of a my Social Security Account
The SSA encourages beneficiaries to create a my Social Security account if they haven’t already. These accounts allow users to:
• View their updated benefit amounts.
• Update personal information such as marital status or address changes.
• Receive notifications without the risk of lost mail.
By embracing these changes, beneficiaries can easily manage their Social Security benefits and stay informed about the adjustments that affect their financial well-being.
As 2025 approaches, the modest COLA increase and other improvements aim to provide greater clarity and support to those who depend on Social Security, even in a changing economic landscape.
