As 2024 comes to a close, it’s time to think about 2025 and how our budgets will work. This is especially true for people who depend on Social Security and want to know how the new cost of living adjustment (COLA) will affect their money in the coming year.
When compared to the last four adjustments, the new COLA for 2025, which was announced in October, is pretty low.
However, the 2.5% increase is a good sign because it means that inflation has gone down and the economy is stabilising after the pandemic turned the world upside down. To give you an idea, the COLA in 2024 was 3.2%, but inflation quickly topped it in the first half of the year.
Because people on fixed incomes were in a lot of trouble, the government worked hard to bring down inflation in the second part of the year. This is what led to the 2.5% increase that will happen.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to figure out the COLA. The CPI-W is an index from the Bureau of Labour Statistics that tracks monthly changes in prices for eight groups:
housing, clothing, medical care, recreation, education and communication, and other goods and services.
A percentage is used to figure out how much these areas have changed. Then, the percentages for July, August, and September are compared to the same index from the previous year. The rate of return for the next year is the difference between the two numbers.
What will happen to Social Security payments in 2025 because of the new COLA
Seventy-five million people in the United States receive Social Security benefits, with fifty million of those being retirement benefits. This means that when monthly checks go up in January 2025, they will touch a lot of people.
Commissioner of Social Security Martin O’Malley made a statement after the new COLA was announced that showed how the raise will affect people who receive benefits. “In 2025, Social Security and SSI payments will go up.
This will help tens of millions of people keep up with their costs, even though inflation has started to slow down.” In January 2025, a cost-of-living adjustment (COLA) of 2.5% will be given to about 68 million people who get Social Security.
On December 31, 2024, payments to about 7.5 million people who get SSI will go up.The message said, “Note: Some people get both Social Security benefits and SSI [Social Security Income].”
Other changes that will be made besides the COLA
The Social Security Administration (SSA) will make some big changes in the new year. One of the biggest is that the yearly notice that beneficiaries will get will be easier to understand and will explain how the COLA affects their real benefit.
Since most of the information is now available through the improved my Social Security account, this document will be “a newly designed and improved COLA notice that makes it easier for customers to find the information they need most.
” It used to be pages long and very detailed. There is now only one page of the simplified COLA notice. It uses simple, personalised language and gives accurate dates and dollar amounts of a person’s new benefit amount and any deductions.
If you need more information, people who don’t already have an account should make one. This will help them figure out not only the increase, but also other information they need to give the SSA, like a change in their marital status or address, and make sure they get all notifications without having to worry about them getting lost in the mail.