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Every month, beneficiaries receive a boost from the cost of living adjustment (COLA), normally confirmed at the end of the year. As of January, retirees receive that 3.2% monthly increase in their Social Security payment amounts to help them keep pace with inflation and cover their daily expenses. Despite this increase, some seniors believe more is needed due to rising inflation in the last few years.
COLA is a percentage that affects all Social Security recipients, and it usually causes a lot of uncertainty for beneficiaries every year near its announcement as it affects their future Social Security payment amounts. Retirees should be aware that the cost of living adjustment will affect not only their finances but also the national treasury, resulting in increased taxes. As a result, understanding how Social Security is updated through COLA is critical for determining the economic impact of 2025.
How does the COLA work, and what is its impact on the Social Security payment amounts of retirees?
COLAs are percentage increases that are used as a measure to adjust a wide range of values, usually related to Social Security Administration (SSA) regulations. However, it can also be used to address a variety of other issues. COLA’s primary purpose is to mimic inflation’s effects on the economy while protecting Americans’ purchasing power. Therefore, it is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The CPI-W is constructed by selecting a fixed set of goods and services and tracking them over time to better understand how prices are changing. They are then weighted based on the preferences of families who earn at least 50% of their income from clerical or wage employment. The result is a value for each month that is used to calculate the index. COLAs are calculated as an average of CPI-W changes for each third quarter of each year (July, June, and September).
COLA projections for 2025 could increase retiree’s Social Security payment amounts between 2.5% and 3%
The exact figure for the COLA is not determined until October of each year, so the expected percentage increase will fluctuate over time. Analysts and politicians will meet in October to determine how the cost of living adjustment (COLA) will affect planned policies and expenditures for the coming year. Keep in mind that monthly inflation is the primary indicator for predicting future trends, so they will have to analyze previous years as they have seen significant inflation rates, such as 9.1% in July 2022 due to the pandemic.
Although the upward trend has slowed, it is still 1% above pre-pandemic levels. In 2024, inflation rose from 3.1% in January to 3.5% in March, raising expectations for a larger COLA and greater competitiveness than in past years.Unfortunately for seniors, this trend reversed, and the cost of living fell steadily in April, ending May at 3.3%. As noted above, this could set a pattern for the next three months and be critical in determining cost-of-living adjustments. According to the Senior Citizens League (TSCL), based on this forecast, the value in 2025 will be between 2.57% and 3%.
Social Security payment amounts for retirees in July?
Based on the 3.2% COLA that was implemented at the beginning of this year, retirees can expect to receive the following payments on July 3rd if they claimed benefits before May 1997:
Retirement age | Social Security payment |
Average payment | 1,900 |
Claim benefits at 62 | 2,710 |
Claim benefits at 67 | 3,822 |
Claim benefits at 70 | 4,873 |
Don’t forget that not all retirees receive the same Social Security payment amount, as it depends on several factors such as their retirement age, working history, and contributions made. For additional information about the upcoming payment dates, please refer to the Social Security payment schedule for this year.
How much money will a 3% COLA increase affect retirees’ paychecks?
If the COLA projections of 3% were to be implemented, then retirees would receive a Social Security payment increase, as here detailed:
Retirement age | Social Security payment | Social Security payment (Plus COLA 3%) |
Average payment | 1,900 | 1,957 |
Claim benefits at 62 | 2,710 | 2,791 |
Claim benefits at 67 | 3,822 | 3,937 |
Claim benefits at 70 | 4,873 | 5,019 |