The 2025 COLA has been announced – Here’s why many retirees are unhappy with the increase

Approximately 70.6 million people receiving Social Security benefits are anticipating a smaller cost-of-living adjustment (COLA) for 2025 compared to recent years. Analysts predict a 2.5% COLA increase for 2025, a sharp contrast to the 3.2% increase in 2024 and the notable 8.7% rise in 2023, which was driven by historically high inflation. As inflation moderates, so do COLA increases, leaving many beneficiaries concerned about how this will impact their ability to keep up with rising living costs.

Concerns

For many beneficiaries, like 82-year-old Sherri Myers from Florida, the 2.5% increase is unlikely to ease the financial strain caused by inflation. Despite receiving a slight bump in benefits, Myers remains concerned that it won’t be enough to cover her everyday expenses. Like many retirees, she finds herself in a difficult situation, with inflation eroding her savings and leaving her without much of a financial cushion.

For the average retiree, who receives about $1,920 per month, the projected 2.5% COLA translates to an increase of $48 per month. According to Bill Sweeney, Senior Vice President of Government Affairs at AARP, many seniors will likely feel that this increase is insufficient to cover rising costs, particularly in essential areas such as food, housing, and healthcare. While the smaller COLA reflects a positive trend in lower inflation, the impact on day-to-day finances for seniors is mixed at best.

Challenges

Beyond the immediate concerns of beneficiaries, Social Security faces significant long-term financial challenges. According to the Social Security and Medicare trustees’ report released in May, the Social Security Trust Fund is expected to be depleted by 2035. If that happens, the government will only be able to pay 83% of scheduled benefits, putting millions of Americans at risk of losing part of their retirement income.

Social Security is primarily funded through payroll taxes collected from workers and their employers. For 2024, the maximum earnings subject to Social Security payroll taxes was set at $168,600, an increase from $160,200 in 2023. Analysts expect this limit to rise to $174,900 in 2025. While these changes will increase the amount of revenue going into the Social Security system, they won’t be enough to solve the program’s funding shortfall.

COLA

As the 2024 presidential campaign progresses, Social Security has become a key issue, with candidates offering various solutions to the program’s funding shortfall. Vice President Kamala Harris has pledged to protect Social Security by ensuring that the wealthiest Americans contribute more in taxes. Her proposal focuses on “making millionaires and billionaires pay their fair share,” a move she believes will safeguard Social Security for future generations.

On the other hand, former President Donald Trump has promised not to cut Social Security or raise the retirement age, instead advocating for tax cuts for older Americans. Trump believes economic growth will be the key to resolving Social Security’s financial problems. He has also vowed not to increase the retirement age, distancing himself from more aggressive cost-cutting measures.

Legislative Proposals

Various legislative proposals have been introduced to address Social Security’s long-term funding challenges. One such proposal from the Republican Study Committee suggests raising the retirement age and reducing the annual COLA to cut costs. Trump, however, has not endorsed these proposals, while advocacy groups like Social Security Works have voiced concerns over any efforts to cut benefits.

Social Security Works, an advocacy group dedicated to protecting the program, has endorsed Harris for president due to her commitment to safeguarding Social Security. As a senator, Harris co-sponsored a bill advocating for the use of the CPI-E (Consumer Price Index for the Elderly) to calculate the COLA, a measure that takes into account the specific spending patterns of older Americans, such as healthcare and prescription drug costs. Currently, the COLA is calculated using the broader CPI, which may not fully capture the inflationary pressures that seniors face.

The Bigger Picture

The 2025 COLA increase, while modest, reflects the broader economic moderation of inflation. However, it also highlights the ongoing financial challenges facing Social Security. As the program’s long-term sustainability continues to dominate political debates, beneficiaries like Sherri Myers remain concerned about how their benefits will keep pace with rising costs.

With proposals ranging from tax increases on the wealthy to raising the retirement age, the future of Social Security is likely to remain a central issue in the upcoming elections. For now, beneficiaries can expect a 2.5% increase in their monthly payments starting in January 2025, but the broader debate over Social Security’s solvency is far from over.

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