Current:Home > InvestSocial Security COLA shrinks for 2025 to 2.5%, the smallest increase since 2021 -StockHorizon
Social Security COLA shrinks for 2025 to 2.5%, the smallest increase since 2021
View
Date:2025-04-18 03:36:24
Social Security’s 2025 cost-of-living adjustment shrank to 2.5% from 2024’s 3.2% increase, the smallest rise since 2021, the Social Security Administration said on Thursday.
The 2.5% increase will begin with benefits payable to nearly 68 million Social Security beneficiaries in January. An average beneficiary will see their monthly payment rise next year by $50 to $1,957, up from $1,907 in January 2024.
Approximately 7.5 million Supplemental Security Income recipients will begin receiving their increase on Dec. 31. SSI recipients are those with disabilities and older adults who have little or no income or resources.
Annual COLA is meant to keep beneficiaries’ purchasing power from being eroded by inflation. However, that hasn’t been the case, many older Americans have said. Eighty-three percent of older adults said in August a COLA of less than 3% would be insufficient, according to an AARP survey of 1,000 adults ages 50 and older.
With average retiree benefits rising by $50 per month, "that’s only going to buy about 14 gallons of gasoline per month at today’s prices, or maybe enough groceries for one to last two or three days,” says Mary Johnson, an independent Social Security and Medicare policy analyst who at age 73, also receives Social Security and Medicare.
Capitalize on high interest rates: Best current CD rates
How is COLA calculated?
COLA is based on the percentage increase in the consumer price index for Urban Wage Earners and Clerical Workers from July through September of the last year as compared to the same three months of the current year. CPI-W tracks the overall inflation rate but can differ slightly.
In September, annual CPI-W rose 2.2% compared with a 2.4% overall inflation increase.
Need for Social Security reform:Without Social Security reform Americans in retirement may lose big, report says
Why hasn’t COLA kept up with inflation?
CPI-W isn’t an accurate reflection of what retirees spend most of their money on, Johnson said.
It measures inflation experienced by working adults younger than 62, instead of most retired adults, she said. Younger working consumers spend their money differently than older people covered by Medicare. For example, economists estimate younger workers spend about 7% of their budget on health care costs, but research and surveys have indicated that older adults tend to spend 15% or more of their incomes on health care on average, she said.
Health care costs continue to rise faster than overall inflation. In the 12 months to September, medical care services rose 3.6% and hospital care services were up 4.5%, compared to 2.4% for overall inflation.
“Inflation took a financial toll this past year, particularly on retirees, who often rely on Social Security as a key source of income,” said Jo Ann Jenkins, AARP’s chief executive, in a statement. “Even with this adjustment, we know many older Americans who rely on Social Security may find it hard to pay their bills. Social Security is the primary source of income for 40% of older Americans.”
Seniors (ages 65 and up) are the only group that’s seen an annual increase in poverty since 2020, according to the Census Bureau’s supplemental poverty measure report. The supplemental measure includes cash and noncash benefits, but subtracts necessary expenses such as taxes and medical expenses and takes into account geographic variations in housing expenses.
In 2023, 14.2% of seniors were in poverty, up from 14.1% the prior year, 10.7% in 2021 and 9.5% in 2020, the Census Bureau said. It’s also the highest percentage since 2016’s 14.5%.
“There is more we must do to ensure older Americans can continue to count on Social Security,” Jenkins said.
Americans can take steps to shore up their retirement funds by contributing to a company 401(k) plan, Roth or traditional IRA and reviewing catch-up provisions, but Congress also needs to work on strengthening Social Security, experts said.
"The Social Security Administration has been very open and honest that if action isn’t taken soon, they may not be able to provide full benefits to retirees down the road," said Mike Lynch, retirement planning expert and managing director of Applied Insights at Hartford Funds. "Our elected leaders need to take action."
Former President Donald Trump has proposed to stop taxing Social Security benefits, which is one of the most popular proposals in this election, according to the Wall Street Journal. More than 80% of voters overall like this idea, it said. About 40% of Social Security beneficiaries pay taxes on their benefits, SSA said.
"This idea is the start of a much-needed, broader discussion on potential solutions," Lynch said. "Whether it comes to fruition or not, the fact that this idea has been proposed tells me that the future of Social Security is being discussed."
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com andsubscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
veryGood! (184)
Related
- Romantasy reigns on spicy BookTok: Recommendations from the internet’s favorite genre
- Mass shooting at Buffalo supermarket now Justice Department’s first death penalty case under Garland
- Rapper G Herbo sentenced to 3 years probation in credit card fraud scheme
- How much do surrogates make and cost? People describe the real-life dollars and cents of surrogacy.
- Could Bill Belichick, Robert Kraft reunite? Maybe in Pro Football Hall of Fame's 2026 class
- The US struggles to sway Israel on its treatment of Palestinians. Why Netanyahu is unlikely to yield
- Police in Puerto Rico capture a rhesus macaque monkey chased by a crowd at a public housing complex
- Jelly Roll gives powerful speech to Congress on fentanyl: What to know about the singer
- Person accused of accosting Rep. Nancy Mace at Capitol pleads not guilty to assault charge
- Rescue kitten purrs as orphaned baby monkey snuggles up with her at animal sanctuary
Ranking
- Sam Taylor
- Belarusian journalist goes on trial for covering protests, faces up to 6 years in prison
- Massachusetts man to buy safe car for daughter, grandchild with $1 million lottery win
- Supreme Court agrees to hear Starbucks appeal in Memphis union case
- US appeals court rejects Nasdaq’s diversity rules for company boards
- Robot baristas and AI chefs caused a stir at CES 2024 as casino union workers fear for their jobs
- Republicans push back on Biden plan to axe federal funds for anti-abortion counseling centers
- Stop, Drop, and Shop Free People’s Sale on Sale, With an Extra 25% Off Their Boho Basics & More
Recommendation
Toyota to invest $922 million to build a new paint facility at its Kentucky complex
Lawmakers may look at ditching Louisiana’s unusual ‘jungle primary’ system for a partisan one
A British D-Day veteran celebrates turning 100, but the big event is yet to come
CVS closing select Target pharmacies, with plans to close 300 total stores this year
Toyota to invest $922 million to build a new paint facility at its Kentucky complex
Would David Wright be a Baseball Hall of Famer if injuries hadn't wrecked his career?
Nevada 'life coach' sentenced in Ponzi scheme, gambled away cash from clients: Prosecutors
CVS closing select Target pharmacies, with plans to close 300 total stores this year