The new COLA increase and its impact on Social Security benefits. The Social Security Administration’s (SSA) annual COLA announcement is the most anticipated news for beneficiaries, as these poll results show. After many months of waiting, the final percentage was announced on October 10, but because the 2.5% COLA increase is significantly lower than last year, it brought a mixed bag of good and bad news for Social Security beneficiaries in the coming year.
The cost of living adjustment (COLA), which you’ve probably heard about for weeks, is the SSA’s tool for adjusting Social Security benefits to account for the impact of inflation. Consider a scenario in which the price of purchasing a wide range of goods and services increases by 3%. Retirees’ purchasing power would gradually decline due to inflation (increasing prices) if Social Security payouts didn’t rise. To prevent beneficiaries from losing their purchasing power, COLA is only the “raise” that is passed along most years.
When Social Security was first enacted in 1935 and continued until 1974, there was no logic or rationale for benefit adjustments. The first COLA was enacted by a lame-duck session of Congress a little more than a decade after the first retired worker’s check was delivered in January 1940. In addition, beginning in 1975, price changes were tracked using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This allowed for annual cost-of-living adjustments, a significant step forward for America’s premier retirement program.
Last month, the Social Security Administration shared some news that millions of seniors have been waiting for — an official 2025 cost-of-living adjustment, or COLA. Benefits will be rising 2.5% at the start of the new year. And while that’s certainly not the smallest COLA seniors have ever gotten, it pales in comparison to recent ones, including the 3.2% raise seniors got earlier this year.
