The Social Security Administration (SSA) administers benefits for many Americans. According to the Social Security Administration’s Office of Retirement and Disability Policy, 70.6 million people will receive benefits in 2022, and the SSA takes this obligation seriously.
Social Security benefits are more frequently known as retirement benefits, although the SSA operates five different programs, each with its own set of requirements and beneficiaries, all of which belong under this umbrella designation. They have little in common other than the fact that they all receive a Cost of Living Adjustment, or COLA, each year.
The Social Security COLA
This COLA, announced on October 10th and effective January 1st, ensures that beneficiaries do not lose purchasing power over time by providing a set benefit. This implies that, unlike a job, there are no periodic rises or opportunities to go somewhere for greater compensation, so the SSA must ensure that they can stay up with inflation while maintaining a decent lifestyle.
The COLA is computed by comparing the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third trimester of the year to the previous year. The resulting amount represents the COLA, which was 3.2% in 2024 and will be 2.5% in 2025.
The COLA was much lower than many expected, especially given the inflationary turmoil that we have experienced in 2024, and many seniors have complained that the CPI-W only tracks spending by young city workers and not elderly people, who are more burdened by healthcare and other age-related costs.
Given that the average monthly Social Security income for the retired population in 2024 is around $1927, the 2.5% rise would only raise the 2025 amount to $1976 per month. This is around a $50 boost, which would be insufficient to offset rising prices and maybe replenish some of the savings that seniors have used to make ends meet since inflation overtook the COLA in the first half of 2024.
According to Nancy Altman, President of Social Security Works and Chair of the Strengthen Social Security Coalition, “The automatic annual cost-of-living adjustment is one of Social Security’s most important and distinguishing features.”
It is meant to prevent benefits from eroding over time, but the existing formula does not adequately account for older Americans’ spending. This may be solved if the COLA was decided by another inflation measure known as the Consumer Price Index for Elderly Consumers, or CPI-E, which estimates price rises based on expenditure by those aged 62 and up.”
And this is not just theory; seniors across the country are rapidly depleting their savings, and the raise will not help to refill them because it barely (if at all) covers the increases in spending witnessed in previous years.
This is the case of Sherri Myers, an 82-year-old citizen of Pensacola City, Florida. She explained that the rise she will receive in January “won’t make a dent” in her ability to meet her day-to-day expenses.
Even at her age, she is looking for a job to supplement her tiny pension and Social Security benefits. As she clearly states, “Inflation has consumed my savings. I don’t have anything to fall back on—the cushion is gone.”
The removal of the GPO and WEP, which would enhance her benefits, may be insufficient to compensate for all of the lost income from minor adjustments that do not keep up with seniors’ needs.