The Cost-of-Living Adjustment (COLA) is applied annually to Social Security and other government benefits, contrary to popular belief.
The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).This is a metric that weights eight types of life expenses, such as housing and medical costs, into a percentage. The COLA for benefits compares the CPI-W for the third quarter (July, August, and September) to the previous year’s amount. The COLA % represents the increase.
The 2025 COLA, which is typically issued in October, will be applied to benefits in 2025 and is 2.5 percent.
The 2025 impact of the COLA on Social Security benefits
Beneficiaries have identified several major issues with the COLA throughout time.
The first issue is that inflation might quickly outweigh the COLA rise, rendering it ineffective. In 2024, inflation surpassed the 3.2% increase in the first half of the year. Despite efforts by the Federal Reserve and government, the problem is expected to reoccur in 2025. Prices for basic necessities such as groceries, housing, and public transit have continued to rise after the increase was announced two months ago.
The COLA index is geared towards young urban professionals, not the elderly, disabled, or disadvantaged population, who typically spend more on housing and medical costs (which are rapidly rising). Advocates suggest utilizing the CPI-E index, which includes the same categories as the CPI-W but prioritizes housing and medical costs in calculating the rise. This index consistently outperforms the CPI-W, resulting in a greater increase in compensation for beneficiaries.
Another issue with the system’s structure is that, because recipients are assumed to be on fixed income and the raise always occurs after expenses have grown, there is no way for them to avoid losing purchasing power over time. Many people rely on savings or benefits like Supplemental Nutrition Assistance Program (SNAP) to get by. This implies that they can never recoup funds as Social Security is not designed to do so, and they will never receive a sufficient rise to cover all their bills. For individuals with good savings and assets, this can be salvaged; however, those who live paycheck to paycheck require greater government assistance to maintain an acceptable level of life, which would not be as significant if the increase was more sufficient to their requirements.
What other benefits are available that also rely on the COLA
Most Social Security beneficiaries are eligible for the SNAP program, which receives annual increases in line with the COLA. According to the National Council on Aging, three-fifths of eligible seniors are not taking advantage of available benefits. The organization encourages those who are struggling to make ends meet to apply.
Following the hike, those who are eligible could get $292 for a single-person household and $536 for a household of two.
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