Social Security Cost-of-Living Increase May Fall Short for Many Retirees

Sherri Myers, an 82-year-old resident of Pensacola City, Florida, expressed concerns about the upcoming Social Security cost-of-living adjustment (COLA) set to take effect in January, stating it “won’t make a dent” in her day-to-day expenses.

Myers noted that rising inflation has significantly depleted her savings, leaving her with no financial cushion. As a result, she is considering seeking additional work to supplement her retirement income, which consists of a modest pension and Social Security benefits.

Approximately 70.6 million Social Security recipients are expected to receive a smaller COLA for 2025 compared to previous years due to moderated inflation. The Social Security Administration is anticipated to announce the official COLA on Thursday, with analysts predicting an increase of about 2.5%. This follows a 3.2% increase in 2024 and a notable 8.7% in 2023, which were responses to historically high inflation rates.

The AARP estimates that a 2.5% adjustment would increase the average monthly benefit for retirees, currently at about $1,920, by approximately $48 starting in January 2025.

“I think a lot of seniors are going to say that this is not really enough to keep up with prices,” stated Bill Sweeney, AARP’s Senior Vice President of Government Affairs.

Although he acknowledged that the smaller adjustment indicates a decrease in inflation.

The upcoming announcement comes amid concerns regarding the long-term financial stability of Social Security. The annual Social Security and Medicare trustees report, released in May, projected that the program’s trust fund will be unable to pay full benefits beginning in 2035. If the trust fund becomes depleted, beneficiaries could receive only 83% of their scheduled payments.

The program is primarily funded through payroll taxes from workers and employers. For 2024, the maximum earnings subject to Social Security taxes is set at $168,600, with expectations for it to rise to $174,900 in 2025.

On the political front, Vice President Kamala Harris and former President Donald Trump have presented opposing strategies to strengthen Social Security. Harris has stated her intent to protect the program by ensuring that high-income individuals pay their fair share in taxes, while Trump has promised not to implement cuts or change the retirement age, emphasizing his commitment to maintaining current benefits.

Both candidates were interviewed by AARP in August, with Harris proposing that taxes on billionaires and corporations could help shore up the trust fund, while Trump highlighted growth as the solution without altering the program.

Amid these discussions, lawmakers are exploring various proposals to address the funding shortfall, including suggestions from the Republican Study Committee to increase the retirement age and reduce annual COLAs. However, Trump has not endorsed this plan.

Advocacy groups, such as Social Security Works, have expressed concern about potential cuts to benefits for retirees. The organization has supported Harris in part due to her past legislative efforts to reform how the Social Security Administration calculates cost-of-living adjustments, advocating for the use of a different index that better reflects seniors’ spending patterns.

Currently, the COLA is determined based on the Bureau of Labor Statistics’ Consumer Price Index, which does not adequately account for rising healthcare costs—one of the largest expenses for retirees. Shannon Benton, executive director of the Senior Citizens League, stressed the importance of adjusting the calculation method to reflect the financial realities faced by seniors.

With input from the Associated Press, the Washington Post, CNBC.