The US economy has seemingly avoided a recession while managing to slow down inflation. However, retirees will feel the pinch as inflation rates continue to decline, resulting in lower Social Security cost-of-living adjustments (COLAs) for 2025.
Starting January, current Social Security recipients can expect a 2.5% COLA, significantly lower than the 8.7% increase received last year. This decrease means that retirees will have less purchasing power, exacerbating their financial struggles during the holiday season.
The Social Security Administration (SSA) calculates the annual COLA based on the third-quarter Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The SSA uses this average inflation rate to determine how much an increase in Social Security benefits is needed for the following year.
While some retirees might not notice the difference, many rely heavily on Social Security for 90% or more of their retirement income. In 2025, the average monthly Social Security check will be $1,968, leaving little room for other essential expenses like food and utilities.
The maximum Social Security benefit for 2025 varies depending on when a person retires: full retirement age yields $4,018, early retirement at 62 results in $2,831, while waiting until age 70 secures $5,108. Notably, delaying retirement pays off, as these amounts are significantly higher than the average monthly check.
To get a personalized Social Security estimate, visit ssa.gov and download your estimate based on your work history and desired retirement age. This will help you plan for a secure retirement and understand how to supplement your income with IRAs or other workplace retirement accounts.
David Rae is a certified financial planner who aims to help individuals enjoy happier, healthier, and wealthier lives through comprehensive financial planning.
Source: https://www.forbes.com/sites/davidrae/2024/12/08/how-big-will-the-raise-be-for-social-security-in-2025