Retirees Face Tough News – The Painful Reality of February’s COLA Adjustment

COLA increase in 2025 gives less relief to retirees, rising inflation remains a concern

A certain increase (Cola-Layer-living adjustment) is made every year to balance the cost of living for retired people. The purpose is to ensure that the person’s security amount received by the elderly and pensioners increases in accordance with inflation. However, the Coke growth in 2025 is the lowest in recent years and proves to be unable to fulfill the increasing costs.

Let’s understand in detail what effect it will have on the financial situation of retired people and how they can cope further.

How ​​is COLA decided

Since 1975, Social Security benefits are adjusted every year based on COLA. It relies on an index called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which reflects the prices of goods and services that retirees typically use.

How COLA is calculated

  1. The CPI-W average for the third quarter (July to September) is calculated.
  2. It is compared to the CPI-W average for the third quarter of the previous year.
  3. If inflation rises, Social Security benefits are increased by the same percentage.

The CPI-W inflation rate for 2025 was 2.5%, so Social Security benefits were also increased by 2.5% starting in January 2025. But this increase is already proving to be inadequate due to rapidly rising inflation.

Rising Inflation Effect

A 2.5% increase in COLA may seem reasonable at first glance, but inflation is rising faster.

  • The CPI-W rate was 2.2% in September 2024, rising to 2.8% in December 2024.
  • COLA was calculated based on inflation before September, which did not take into account the effect of subsequent inflation.
  • If the CPI-W inflation rate for the full year of 2024 reaches 2.9%, retirees will actually lose purchasing power.

This means that retirees in February 2025 and beyond will have to bear the burden of increased costs even though their incomes have not increased as expected.

Financial loss due to incorrect inflation estimation

This is not the first time that COLA calculations have failed to accurately reflect inflation.

  • The CPI-W inflation rate in 2023 was 3.8%, but Social Security benefits were only increased by 3.2%.
  • The overall inflation rate over the last two years was 6.8%, but retirees only received a 5.8% increase.

How ​​much are retirees losing

If a retiree is receiving a pension of $1,905 every month, then

  • He should have received a higher increase in 2023 according to the correct inflation.
  • But he received $228 less annually.

This seemingly small amount can create a big financial difference over time, causing retiree people to gradually become financially weak.

The problem is that COLAs lag inflation

The effects of inflation are felt quickly, but Social Security increases are made in light of past inflation.

  • This is why retirees can’t always balance their income with their needs and rising costs.
  • This process continues over the years and gradually weakens their financial position.

This means that retiree’s who rely solely on Social Security benefits will need to find sources of additional income.

Ways to deal with rising inflation

Retirees can consider a few alternative ways to keep their financial position strong.

  1. Invest in a high-yield savings account
    • Interest rates are still high, making high-yield savings accounts a safe way to earn extra income.
  2. Invest in money market funds
    • These investments offer stable returns and are currently paying good dividends.
  3. Buy dividend stocks
    • Stocks of blue-chip companies that pay regular dividends can be a good source to earn extra income.
  4. Work part-time or freelance
    • Many retirees can earn extra money by working remotely or doing freelance work.
    • This can be a good option for those who want to remain financially independent.

What should retirees do

  1. Keep track of your expenses – see where expenses can be reduced. 2. Consider Alternatives – Invest in high-interest savings accounts, dividend stocks, or money market funds.
  2. Find Additional Income Sources – If possible, Try to supplement income by doing part-time or freelance work.
  3. Keep an eye on the latest updates – Follow all new COLA announcements so you can plan ahead.

Conclusion

The 2025 COLA increase is failing to cover rising inflation.

  • Retirees are struggling with rising expenses.
  • COLA is calculated by considering past inflation, which leaves retirees facing financial challenges every year.

Now is the time for retiree people to strengthen their financial strategies and not depend solely on Social Security benefits.

Only by looking for sources of additional income, right investment options and good planning of expenses can they maintain financial stability in the coming years.

FAQs

What is the Cost-of-Living Adjustment (COLA) for Social Security in 2025?

The COLA for 2025 is 2.5%, resulting in an average monthly benefit increase of about $50.

How does the 2025 COLA compare to previous years?

The 2.5% increase is lower than the 3.2% adjustment in 2024, reflecting cooling inflation rates.

How can retirees find out their new benefit amount?

Beneficiaries will receive COLA notices online in the Message Center of their my Social Security account in December 2024.

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