The announcement of Social Security beneficiaries’ impending cost-of-living increase, or COLA, is anxiously anticipated every October. The goal of COLAs is to keep Social Security recipients’ purchasing power stable in the face of rising living expenses.
Consider it in this manner. Let’s say that in 2014, you began receiving $1,500 per month from Social Security. Now consider how many living expenses have increased in the last ten years.
If your $1,500 monthly Social Security payout hadn’t changed, you undoubtedly would have had trouble covering your rising expenses.
You Get More Purchasing Power
Social Security COLAs are particularly reliant on third-quarter inflation figures, which is why they are released in October each year. And the Consumer Price Index for Urban Wage Earners & Clerical Workers is where that information comes from.
It is too early to predict what the Social Security COLA for 2025 will be because the third quarter of 2024 has not yet arrived. However, early estimates suggest a COLA of less than 2%.
It may not seem like a lot at first, but compare that against the 3.2% COLA the elderly on Social Security received at the beginning of this year. However, it might not be entirely detrimental to have a lower COLA.
Do Not Rely On COLA In The First Place
It is only reasonable to desire to see an increase in your monthly income, whether you are receiving Social Security. It won’t help you much, though, if your pay increases so slowly that it cannot keep up with inflation.
For many years, recipients of Social Security have struggled with that issue. Therefore, if you’re a recipient of benefits, you might want to hope that inflation slows down rather than hoping for a significant COLA in 2025 or any other year for that matter.
And it is precisely because of this slowing of inflation that the COLA forecasts for the upcoming year are arriving on the way. Let’s assume, then, that the Social Security COLA for the following year only increases your payment by $40 per month.
That may appear to be a severe blow. However, what would happen if the monthly expenses for groceries, petrol, and utilities decreased by $60 next year?
You’re not necessarily bankrupt in that case since, even with a lower COLA, you’re still saving money because you’re not spending as much of it.
Increase Your Social Security Income
I’m sure a lot of seniors will be upset if the Social Security COLA in 2025 is less than 2%. However, they shouldn’t always be.
But, you should be aware that depending on a specific COLA to make enough to survive is actually not the best position if you’re continuing to work and aren’t yet receiving Social Security.
Having retirement assets to augment your income from Social Security makes COLAs considerably less significant, which is a far better situation.
Therefore, contribute to the IRA or else 401(k) plan if you are still able to. As a retiree, that extra cash may mean you don’t have to wait nervously for a COLA announcement every October.
