Farewell to COLA – Social Security Reveals New Check Increase on This Date

In less than two weeks, Social Security recipients will finally learn the new cost-of-living adjustment (COLA) increase for 2025. While this announcement might seem like a relief, there’s a growing concern that the adjustment won’t be enough to cover the increasing living expenses faced by many retirees.

Social Security is a critical program for millions of Americans, but it’s also one of the most expensive federal initiatives. Of the 68 million recipients, nearly 50 million are retired workers, collectively receiving around $1.5 trillion each year. However, for about 13% of these beneficiaries, Social Security benefits are their only source of income, and more than 40% depend on it for at least half their earnings.

COLA

Each year, Social Security benefits are adjusted to account for inflation through the COLA, ensuring seniors can manage rising costs. Before 1975, Congress had to approve any changes, leading to long delays. Luckily, that’s no longer the case, as an automatic system was enacted. Since then, retirees have seen consistent increases in benefits, driven by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The CPI-W is a measure of inflation used by the Social Security Administration (SSA) to calculate these adjustments. It tracks the cost of goods and services that urban wage earners and clerical workers typically buy. Every month, the U.S. Bureau of Labor Statistics (BLS) reports the CPI-W figure, which influences the COLA. However, despite its long-standing use, there’s debate about whether this index accurately reflects the spending patterns of seniors.

Inflation

The lasting effects of the coronavirus pandemic are still hitting American wallets. While inflation has eased compared to its 2021 and 2022 peaks, many retirees are still feeling the squeeze. In response to the steep inflation seen during those years, Social Security recipients experienced generous COLA increases—5.9% in 2021 and a whopping 8.7% in 2022—the highest adjustments in decades. However, even these increases may not fully reflect the inflation seniors face.

One key issue is that the CPI-W is geared toward younger workers rather than retirees, whose spending habits differ. For example, medical care tends to account for a much larger portion of retirees’ budgets, and healthcare costs often rise faster than other expenses. Unfortunately, the CPI-W doesn’t fully account for this, meaning seniors may still struggle with declining purchasing power even after receiving a COLA increase.

Lost

According to The Senior Citizens League (TSCL), Social Security beneficiaries have seen a 20% reduction in their purchasing power since 2010. Even with the COLA, many retirees feel the gap between their benefits and actual living costs is growing. Medical care, housing, and food costs often outpace the official inflation rate measured by the CPI-W, leaving retirees financially strained.

So, while the upcoming COLA adjustment will provide some relief, it’s unlikely to fully make up for the lost purchasing power over the years. According to TSCL’s projections, the COLA for 2025 is estimated to be around 2.5%, lower than last year’s 3.2%. Though an increase of any kind is better than none, it may not be enough to cover the true rise in seniors’ living expenses.

Future

The official COLA number for 2025 will be released in October, but it’s based on CPI-W data from July, August, and September. With two of those months already reported, experts have a good sense of what the final adjustment might be. The TSCL estimate of 2.5% isn’t far from reality, but whether that will help retirees keep up with their growing expenses is the bigger question.

Although the CPI-W has been used for decades, it may be time to reconsider if it’s the best gauge for determining Social Security benefits. With seniors facing steeper costs in healthcare, housing, and other necessities, an index that better reflects their specific financial challenges could ensure that the COLA keeps pace with their actual needs.

Retirees relying on Social Security need the COLA to accurately reflect the cost increases they face daily. While this year’s adjustment will provide some relief, the long-term solution may require rethinking how benefits are calculated to prevent seniors from continually losing purchasing power.

Ultimately, Social Security remains a lifeline for millions of retirees. But the question remains: will future COLA adjustments be enough to meet the rising costs of living?

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