On an annual basis, the Social Security Administration makes adjustments to benefits in accordance with the cost of living. As a result of the changes that were announced in October, which are scheduled to take effect in January, benefits are likely to be increased.

Key Points:

• Every year, the cost-of-living adjustments are made to make sure that benefits keep up with the cost of living.

• More than 65 million Americans who get benefits from Social Security will be affected by the cost-of-living adjustment (COLA) for 2025.

• The highest amount of money you can get from Social Security each month is $4,873, and it will go up with the 2025 COLA.

• On October 10, 2024, the Social Security Administration will say what the COLA is.

• The Senior Citizens League thinks that in 2025, Social Security benefits will go up by 2.5%.

This month, we will hear about Social Security's cost-of-living adjustment (COLA) for 2025. In January, it will have an impact.
This month, we will hear about Social Security's cost-of-living adjustment (COLA) for 2025. In January, it will have an impact.

What is the Social Security COLA?

Benefits have been adjusted at the beginning of each calendar year by the SSA to keep up with inflation since 1975. The CPI-W, which measures changes in prices for urban wage earners and clerical workers, is used to determine this yearly increase.

Inflation spiked after the pandemic, which led to a higher COLA in subsequent years.

2021: 1.3%

2022: 5.9%

2023: 8.7%

2024: 3.2%

Benefits don't change all the time, but it does happen sometimes: Since it began in 1975, the COLA has only been 0% three times: in 2009, 2010, and 2015.

These changes are meant to help seniors deal with rising costs. The price of goods and services has gone up 24.6% since 2021. If the adjustment for 2025 is 2.5%, SSA benefits will have gone up by 23.4% over the past few years, which is almost the same amount.

How much is the Social Security Increase for 2025?

Officially, the 2025 COLA will be announced on October 10, 2024, by the Social Security Administration.

Both the non-profit Senior Citizens League and Boston College's Center for Retirement Research have forecasted a 2.5% increase. If confirmed, it will indicate a small increase compared to the 3.2% increase in 2024.

Inflation has been declining since reaching post-pandemic highs, according to the US Bureau of Labor Statistics: A 2.5% increase in average prices since August 2023 was recorded in the August 2024 Consumer Price Index report. This was the smallest 12-month increase since February 2021.

The average monthly Social Security check for retired workers would increase to $1,966 with a 2.5% COLA, which is equivalent to an increase of $48.

Official notification regarding Social Security benefits for 2025 will be sent to beneficiaries in December.

But you can access that information online in mid-November via your mySocialSecurity account.

The Social Security COLA is determined in what ways?

The CPI-W, which measures changes in the general price level of consumer goods such as food, housing, and transportation, is used by the Bureau of Labor Statistics to determine the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which in turn determines the COLA.

In any particular year, the CPI-W from the previous year's third quarter is used to determine the COLA. In October 2024, using data from July to September, the COLA for 2025 will be announced.

You can anticipate your paychecks for the following year by adding the percentage of cost-of-living adjustment to your present paychecks once you find out the official COLA on October 10, 2024. Additionally, in December, you will receive a customized COLA notice from the Social Security Administration that details your precise benefit amount for 2025.

The first step in planning your budget for the following year is to determine how much money you will receive from the program. If you are concerned that your retirement funds won't cover your expenses, you may want to look into other income options. Examples of this might be a regular paycheck, rental income, or assistance from the government.

Impact on Social Security in the Year 2025

In order to be eligible for Social Security retirement benefits, you are required to accumulate 40 work credits throughout your lifetime, with a cap of four credits per annum.

It was necessary to earn over $6,920 in 2024 in order to earn four credits. The exact amount will not be revealed until October 10th, 2025, but it will increase. (The income minimum for 2024 was $6,830, a $90 increase from the previous year.)

There may also be an increase to the yearly income threshold for Social Security taxation. A rise of $8,400 from 2023 brings the maximum income to $168,600 in 2024.

How much is the average Social Security check?

A number of variables determine your exact Social Security benefits; these include your earnings during your working years and the age at which you begin to claim your benefits.

Retired workers received an average monthly Social Security benefit of $1,918 in June 2024. The average payment was $1,781 for all beneficiaries, including spouses, children, and employees with disabilities.

The Social Security Administration reports that half of all seniors rely on their benefits to make up half or more of their household income. Some 25% get 90% or more of their income from checks.

Improving your standard of living in retirement is possible with the help of a 401(k) or an individual retirement account (IRA) that is offered by your employer. We thought that Betterment and Charles Schwab were two of the top IRAs.

FAQs

Which government benefits use cost-of-living adjustments?

The cost-of-living adjustment (COLA) impacts more than just Social Security. As a means of adjusting benefits for inflation, COLA is utilized by Medicare, Social Security Disability Insurance, Supplemental Security Income, and Supplemental Nutrition Assistance Program (which includes food stamps and other programs).

How Does the COLA Work?

The Social Security Act specifies a formula for calculating the COLA, which is used to guarantee that benefits remain stable over time due to inflation.

This formula is based on the monthly CPI-W increases that are calculated by the Bureau of Labor Statistics for Urban Wage Earners and Clerical Workers. The percentage increase in the CPI-W from one year's third quarter to the next's third quarter is used in the formula to adjust COLA.

Beneficiaries received an extra $50 monthly last year, thanks to a 3.2% increase.

When Will It Be Announced?

It is common practice to announce the COLA in the fall since the calculation is based on inflation numbers from the third quarter.

Reports indicate that the Social Security Administration is expected to release the amounts for the cost-of-living adjustment on October 10th, although the official announcement is scheduled for some point in October.

But until the new year rolls around, benefits will stay the same. Beneficiaries will begin receiving their revised Social Security benefits in January after the December adjustment.

Why Is It Important?

In order for beneficiaries to stay up with inflation, cost-of-living adjustments are crucial.

Since the pandemic, inflation has skyrocketed, driving up the cost of necessities like food, clothes, and housing. It is already difficult for many people who receive Social Security benefits to get by on their own. Those benefits would have less buying power without cost-of-living adjustments.

In Conclusion

It is important to keep in mind that these are estimates, and that they are subject to change on a monthly basis based on the rate of inflation that occurred the previous month. Although they tend to be somewhat parallel to the official rate, they are not always accurate.

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