the new amount of money you receive

According to Vibes.okdiario, If you’re a Social Security beneficiary, there’s some good news: a cost-of-living adjustment (COLA) will slightly raise your benefits in 2025. However, this increase will be more modest than in recent years, which might be surprising to some. The COLA for 2025 is set at 2.5%, down from 3.2% in 2024 and 8.7% in 2023, meaning beneficiaries can expect an average monthly increase of about $50.

Smaller Social Security Benefit Increase for 2025

The Social Security Administration will apply this adjustment in the final payment cycle of the year, so beneficiaries will see the increase in their December 2024 payments, which are set to disburse in January 2025. This adjustment also applies to federal Supplemental Security Income (SSI) payments, which will similarly increase by 2.5% beginning in January 2025. The goal of the COLA is to help beneficiaries keep pace with rising costs for essential goods and services, though this year’s modest increase may not fully cover the effects of inflation on the cost of living.

How is the COLA Adjustment Calculated?

The Social Security Administration calculates the COLA by analyzing the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Each year, the SSA reviews price changes from July through September (the third quarter) to determine how much to adjust benefits for inflation. The CPI-W tracks general inflation rates, though it reflects spending patterns more aligned with working-age individuals rather than retirees.

Why COLA May Not Fully Reflect Retirees’ Cost of Living

One common criticism of the COLA calculation is that the CPI-W may not accurately represent the spending habits of retirees, who typically dedicate a more significant portion of their income to healthcare. The index primarily measures inflation based on the expenses of workers under age 62, whereas retirees tend to spend more on medical care, where costs have historically risen faster than the general inflation rate.

Rising Medical Costs and Their Impact on Retirees

Healthcare expenses can be a significant factor for retirees, and these costs have been increasing at a rate beyond general inflation. Over the past year, medical services rose by 3.6% and hospital services by 4.5%, whereas the overall inflation rate was 2.4%. Younger individuals tend to allocate about 7% of their budget to healthcare, while older adults may need to spend 15% or more of their income on medical expenses. This disparity in spending habits can make the 2.5% COLA seem inadequate for some retirees.

Also read: IRS Announces New Tax Brackets for 2025 and Social Security COLA – How They Will Affect New York Residents

Moderate Increase Reflects Slower Inflation, but Challenges Persist

Though any increase in benefits is generally welcome, the 2.5% COLA may not fully address the rising costs that many retirees face, particularly as certain sectors like healthcare continue to see above-average price increases. This moderate increase mirrors the current slowdown in overall inflation, but retirees who depend heavily on Social Security may find it difficult to keep up with expenses, especially in high-cost areas.

Looking Ahead: Potential Changes to COLA Calculations?

As Social Security continues to review the COLA annually, there may be growing discussions about revising the calculation method to better align with retirees’ spending patterns, particularly the rising costs of healthcare. While this year’s 2.5% adjustment provides modest relief, it underscores the ongoing challenge of helping beneficiaries maintain their purchasing power as essential expenses continue to fluctuate.

In summary, while the 2025 COLA increase is smaller than previous adjustments, it aims to provide some level of support for Social Security recipients facing rising costs for everyday essentials.