Nearly 68 million Americans depend on Social Security benefits as either a financial safety net or the sole source of income during retirement, says the Social Security Administration (SSA). This substantial dependency on Social Security benefits emphasizes the importance of comprehending their intricacies, as they could significantly influence one’s financial health post-retirement and beyond. Benefits are determined based on the individual’s lifetime earnings and age at the commencement of the benefits.
These benefits don’t only apply to retirees but also extend to spouses, children, and survivors of deceased workers. Furthermore, individuals with disabilities or severe medical conditions can apply for Social Security disability benefits, offering critical financial support during demanding periods.
The SSA estimates a 2.66% increase for the Social Security cost of living adjustment (COLA) in 2025, with the official figures to be disclosed later in October.
Decoding Social Security benefits and COLA
While this projection may promise a rise in benefits, beneficiaries are advised to anticipate modest increases while planning their budgets to avert financial difficulties.
COLA, essentially designed to align benefits with inflation, uses data from the Bureau of Labor Statistics – particularly the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) – to maintain relevancy in benefits amidst potential rises in the cost of living.
Following the 1972 Social Security Amendments, which introduced COLA, only three instances of no COLA have occurred – 2010, 2011, and 2016 – times when the CPI-W didn’t alter. These changes align with the legislation, ensuring an automatic update to the benefits.
The provisional forecast for the 2025 COLA by the Senior Citizens League stands at 2.66%, relying on data from July through September. However, fluctuations in economic conditions could influence these projections.
In the past decade, COLA has seen substantial variations, from no raise in 2016 to an 8.7% increase in 2023. Despite calls for more predictable increases to aid in effective budget management, the ever-changing economic factors make it tough to maintain a steady growth trajectory of the COLA.
