On Oct. 10, the Social Security Administration announced that the cost-of-living-adjustment (COLA) increase for 2025 would be 2.5%.
That’s likely disappointing news for retirees who have experienced much larger COLA bumps in recent years; in 2024, the COLA increase was 3.2%.
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Here’s what Chris Orestis, a certified senior advisor and president at Retirement Genius, said that retirees need to know about the upcoming COLA increase.
If you’re a retiree and worried about next year’s COLA increase, here are five things you can do now.
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There’s a Silver Lining to the Smaller Increase
The Social Security Administration tracks the Consumer Price Index (CPI) on an annual basis to measure the impact of inflation on beneficiaries.
“For the last three years, COLA increases have been some of the highest of the last 40-plus years because the country has been working through a post-COVID inflationary spike,” Orestis said.
“When it comes to the COLA, the bad news is the good news — this increase will be much smaller reflective of the fact that inflation has been brought under control and now is under 2%.”
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The COLA Is Not a ‘Raise’
Orestis said that it’s important to keep in mind the true purpose of the annual COLA.
“The COLA increase is not meant to be a ‘raise’ for beneficiaries,” he said. “It is meant to be an income adjustment to reflect the economic conditions of the time.
“The U.S. economy is very strong with inflation now under control, meaning that those people living on fixed incomes from Social Security will have more purchasing power in their lives.”
Any COLA Is Better Than Nothing
Coming off years of large COLA bumps, 2.5% might seem small — but there have been years with no COLA increase.
“The COLA is not something that happens automatically, and some years it does not happen at all,” Orestis said. “With inflation now down under 2%, the COLA for 2025 should be in the right range to help seniors keep up with the cost of living, which is critical for people on Social Security.
“Once you elect to start taking your monthly benefit, the amount you receive is locked in for life,” he added. “The COLA adjustment is the only opportunity people have to see their monthly benefit increased.”
Start Budgeting for Next Year Now
Now that the Social Security Administration has announced the COLA increase for 2025, retirees should start planning their budgets around their new benefit amount.
“Anyone in retirement and relying on Social Security should make sure they are managing their money wisely by living with a budget,” Orestis said. “Knowing that a COLA increase of [2.5%] is coming should be factored into your monthly budgeting.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Counselor: 4 Things Retirees Need To Know About the 2025 COLA