According to the Social Security Administration (SSA), the monthly checks for tens of millions of Americans receiving Social Security benefits will see a slight increase.
The SSA, which oversees these payments, announced on October 10 that the latest Cost-of-Living Adjustment (COLA) will be 2.5% for Social Security and Supplemental Security Income beneficiaries.
These benefits are set to be distributed starting in January 2025.
Through the adjustment, the average monthly benefit for retirees is expected to increase by around $50, as per the SSA.
In a press release, the agency stated, “This year, Social Security beneficiaries will receive a redesigned and improved COLA notice for the first time, making it easier for clients to find the information they need most,” adding that it will provide “plain language” and give specific dates and dollar amounts.
COLA is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers for the months of July, August, and September, as stated by the SSA, which is an indicator for measuring inflation.
“If these indices do not increase, there can’t be a COLA,” SSA mentioned.
The government explains that including COLA is to ensure that the purchasing power of Social Security recipients is not eroded by inflation.
The smaller increase in Social Security benefits for 2025 is attributed to a slowdown in inflation, meaning that prices are not rising as rapidly as during the peak of the COVID-19 pandemic.
In 2023, due to a high inflation period in the third quarter of 2022, Social Security recipients saw an 8.7% COLA increase. The adjustment in January 2022 was at 5.9%, also due to rapid inflation at that time.
The highest-ever recorded COLA was in July 1980 when it surged by 14.2%. The second-highest, at 11.2%, occurred in July 1981.
Since early 2023, the Federal Reserve has raised interest rates to 5% to 5.5%. During a September 2024 meeting, the Federal Open Market Committee lowered rates by 50 basis points to a range of 4.75% to 5.25%.
Around 72.5 million people, including retirees, disabled individuals, and children, receive Social Security benefits each month.
Funding for this program comes from payroll taxes collected for Social Security. The government uses workers’ tax contributions to pay benefits to retirees, disabled individuals, survivors of deceased workers, and beneficiaries’ dependents.
By 2025, Social Security payroll taxes will be assessed on income up to $176,100, exceeding this year’s $168,600 limit.
The future challenges of the fund have long been predicted, mainly due to changes in demographic trends.
With declining birth rates leading to a decreased workforce population, there is a reduced amount of payroll taxes being paid. Meanwhile, more individuals are retiring and accessing Social Security benefits.
The annual Social Security and Medicare Trustees Report released in May projected that starting in 2035, the program’s trust funds will be unable to pay full benefits. If the trust funds run out, the government will only be able to pay out 83% of scheduled benefits.