The Cost of Living Adjustment (COLA) for Social Security recipients was announced in October 2024, and for many, it didn’t meet expectations.
While inflation has been rising, the new COLA of 2.5% is seen as insufficient to cover the increased costs of living. Here’s a deeper look into what the COLA means for Social Security recipients and how it will affect them in the upcoming year.
What is the COLA and Why is it Important?
The COLA is a yearly increase that adjusts Social Security benefits to match the rising cost of living, mainly driven by inflation.
With the prices of goods like food, gas, and rent rising, the COLA helps to maintain the purchasing power of those receiving Social Security payments, particularly retirees who rely on it as their primary income.
However, the 2.5% increase in 2024 has been viewed as a disappointment. The COLA was expected to help cover the gap between rising prices and the benefits that many seniors receive.
But inflation outpaced the 2024 increase, leaving many older Americans struggling to keep up with expenses.
The Impact on Social Security Recipients
The COLA affects millions of Americans who depend on Social Security for their income. There are about 68 million people receiving Social Security benefits, with approximately 7.5 million people getting Supplemental Security Income (SSI).
For 40% of older Americans, Social Security is their main source of income, making the new adjustment crucial for their daily lives.
Jo Ann Jenkins, CEO of AARP, emphasized the importance of the COLA in protecting the retirement income of older Americans against inflation.
Even though the increase won’t fully meet the rising costs, it still provides some relief for seniors trying to cover essentials like food and gas.
Changes in Social Security Payments
The new COLA will be reflected in Social Security payments starting in January 2025. However, Supplemental Security Income (SSI) recipients will receive their updated payments a day earlier, on December 31, 2024, because of the New Year’s holiday. This ensures that payments are not delayed.
Other Changes Related to Social Security in 2025
In addition to the COLA adjustment, several other changes are set to take place in 2025:
- The amount of earnings required to earn Social Security work credits will rise to $1,810 per quarter.
- The maximum taxable income for Social Security taxes will increase to $176,100.
- If you continue working after starting to receive Social Security benefits, the earnings limit before your benefits are reduced will increase to $23,400 in 2025. For those who reach full retirement age (FRA) in 2025, the limit will be $62,160.
While the 2.5% COLA may help somewhat, it is clear that many retirees and Social Security recipients will continue to face financial challenges in 2025. As inflation continues to affect daily expenses, the COLA increase is unlikely to fully bridge the gap for many older Americans.
What is COLA?
COLA stands for Cost of Living Adjustment. It’s a yearly increase in Social Security benefits to keep up with inflation.
When will the new COLA payments be received?
Most recipients will see the new COLA in January 2025. SSI recipients will get their payments a day earlier, on December 31, 202
How does COLA affect Social Security recipients?
COLA adjusts Social Security payments to help recipients keep up with rising prices due to inflation.
How much will the COLA be in 2024?
The COLA increase for 2024 is 2.5%, but many feel it’s not enough to cover rising costs.
Are there other changes to Social Security in 2025?
Yes, the earnings limit to avoid benefit cuts will increase, and the maximum taxable income for Social Security will rise.
