The Social Security Administration (SSA) has recently unveiled the 2025 cost of living adjustment (COLA), which will soon be applied to Social Security benefits. For many retirees, Social Security plays a crucial role, providing approximately 30% of income for Americans aged 66 and older.
This financial support is especially vital for certain demographics; around 15% of women and 12% of men aged 65 and up rely on Social Security for 90% or more of their income.
One key advantage of the Social Security program is its COLA, designed to adjust benefits in line with inflation, helping retirees manage rising costs. However, the response to the new COLA was less than enthusiastic.
Monthly Social Security Benefits to Increase Starting January 1st
The COLA increase is a significant concern for millions of Social Security recipients who depend on these benefits to cover essential living expenses.
The latest COLA for 2025 is set at 2.5%, which closely aligns with the historical average of 2.6% over the last two decades. Here’s a look at recent Social Security COLA rates:
| Year | COLA Increase |
|---|---|
| 2015 | 1.70% |
| 2016 | 0% |
| 2017 | 0.30% |
| 2018 | 2% |
| 2019 | 2.80% |
| 2020 | 1.60% |
| 2021 | 1.30% |
| 2022 | 5.90% |
| 2023 | 8.70% |
| 2024 | 3.20% |
This increase, however, has left many beneficiaries feeling disappointed. A recent Motley Fool survey found that 54% of retirees felt the 2.5% boost was inadequate, with 31% labeling it as “completely insufficient.”
These sentiments reflect the reality that the average monthly retirement benefit, around $1,922 or just over $23,000 annually, may not be enough to cover basic living costs for many. With the 2.5% adjustment, the annual amount would only rise to $23,641—a yearly increase of $577 or about $48 monthly.
Why Current COLA May Not Meet Beneficiaries’ Needs
The primary issue with COLAs is that they’re tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which doesn’t fully reflect retirees’ spending patterns.
Many argue that the CPI-E (Consumer Price Index for the Elderly) would be a more accurate measure, as it places more emphasis on categories like medical care, where costs have consistently risen above the average.
Adopting the CPI-E for COLA calculations would provide a better reflection of inflation impacts on elderly Americans, potentially making future adjustments more beneficial.
Retirement Planning Beyond Social Security
Relying heavily on Social Security alone is unlikely to cover all retirement needs, which is why proactive retirement planning is essential. Building multiple income streams can help secure a more stable retirement.
Consider options like investing, aggressive saving, and other strategies to create a robust financial plan. Typical retirement income sources may include:
- Social Security benefits
- Dividend income from stocks
- Rental income from properties you own
- Pension plans
- Retirement accounts from past employment
- Interest-earning investments like bonds or CDs
- Inheritance
Additional income can come from creative avenues, such as cashing in a life insurance policy, taking out a reverse mortgage, or renting out property space. Even delaying retirement by a few years can provide a substantial boost to your disposable income.
Whatever the approach, planning to cover the majority of your retirement expenses independently is a wise strategy. A well-thought-out plan and careful execution will help ensure financial security.
FAQs
What is the latest COLA for 2025?
The Social Security Administration announced a 2.5% COLA for 2025, which will increase beneficiaries’ monthly checks starting January 1st.
Why do some retirees feel the COLA increase is insufficient?
Many feel that the COLA falls short of covering actual living expenses, as it’s tied to the CPI-W, which doesn’t fully represent retirees’ costs, especially in areas like healthcare.
What is the CPI-E, and why is it suggested for COLA adjustments?
The CPI-E is the Consumer Price Index for the Elderly, which better reflects inflation experienced by older Americans, emphasizing categories like healthcare costs.
How can retirees supplement Social Security income?
Retirees can boost income by investing, securing part-time work, receiving rental income, earning dividends from stocks, or taking advantage of a reverse mortgage if they own property.
Is Social Security intended to be the sole source of income in retirement?
No, Social Security is designed to supplement other income sources in retirement, not to serve as the only source of financial support.