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5 Things to Know About the 2025 Social Security COLA Increase

The Social Security Administration (SSA) is set to announce the 2025 Cost-of-Living Adjustment (COLA) any day now, and the roughly 70 million Americans who rely on these benefits are eagerly awaiting the news. This annual adjustment is crucial for ensuring that Social Security payments keep pace with inflation, safeguarding the purchasing power of retirees and other beneficiaries.

What is the Social Security COLA and Why Does It Matter?

The COLA is a percentage increase applied to Social Security benefits each year to counteract the erosion of purchasing power caused by inflation. It was introduced in the 1970s as part of a significant overhaul of the program, ensuring that seniors and other beneficiaries aren’t left behind as prices rise.

When Will the 2025 COLA Be Announced?

Traditionally, the SSA syncs its COLA announcement with the release of the September inflation report by the Labor Department. The Consumer Price Index (CPI) report, a key indicator of inflation, is slated for release on Thursday, October 10th. The SSA usually follows suit shortly after with the official COLA announcement.

What is the Projected 2025 Social Security COLA?

Early forecasts from the Senior Citizens League (TSCL), a prominent advocacy group for older Americans, suggest a COLA of around 2.5% for 2025. This projection represents a significant dip from the unusually high COLAs seen in 2022 (5.9%) and 2023 (8.7%), driven by the surge in inflation during those years. If the 2.5% estimate holds, it will be the smallest adjustment since 2021’s 1.3% COLA, which was impacted by the pandemic’s dampening effect on inflation.

How Will the 2025 COLA Impact Monthly Benefits?

The average Social Security retirement benefit in 2024 is $1,907, according to SSA data. If the projected 2.5% COLA is implemented, this would translate to a monthly increase of roughly $48. This means the typical monthly benefit would rise to approximately $1,955 in 2025.

Beyond Social Security: The 2025 COLA and VA Benefits

In a landmark move, Congress recently passed legislation tethering veterans’ benefits to the Social Security COLA. The Veterans’ Compensation Cost-of-Living Adjustment Act of 2024 mandates that various VA benefits, including disability payments, clothing allowances, and dependency and indemnity compensation for eligible surviving spouses and children, receive the same percentage increase as Social Security payments. Based on current projections, this means veterans can anticipate a 2.5% increase in these crucial benefits next year.

Looking Ahead: Inflation and the Future of COLA

After peaking at a 40-year high of 9.1% in June 2022, inflation has been steadily cooling down. This decline is largely attributed to the Federal Reserve’s series of interest rate hikes aimed at curbing rising prices. August saw inflation at 2.5%, a three-year low, and experts predict it to further dip to 2.3% for September.

The SSA uses the average inflation rate during the third quarter (July through September) to determine the annual COLA. Specifically, they rely on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks the spending patterns of working Americans. Given the recent downward trend in inflation, the 2025 COLA is anticipated to be lower than the preceding years’ adjustments.

The 2025 Social Security COLA announcement is eagerly awaited by millions of Americans who rely on these benefits. While the final percentage is yet to be revealed, current projections point to a 2.5% increase. As we await the official announcement, one thing is certain: the COLA remains a vital lifeline, ensuring that Social Security benefits retain their purchasing power in the face of ever-changing economic conditions.

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