Social Security Cost-of-Living Adjustment for 2025 to Be Smaller Due to Moderated Inflation

WASHINGTON (AP) — Sherri Myers, an 82-year-old resident of Pensacola City, Florida, is concerned about her financial future despite the planned cost-of-living adjustment (COLA) in her Social Security benefits. Myers expressed her struggles saying that even with the increase, it “won’t make a dent” in her living expenses. “Inflation has eaten up my savings,” Myers stated, underscoring her need to seek employment to supplement her limited pension and Social Security. The Social Security Administration is expected to announce a 2.5% COLA for 2025 on Thursday, marking a significant decrease from previous years as inflation rates have moderated.

The American Association of Retired Persons (AARP) estimates that this adjustment would raise the average retiree’s monthly benefit of $1,920 by $48 starting in January 2025. Bill Sweeney of AARP mentioned that although the increase is a sign of moderating inflation, many seniors might find it insufficient to match rising prices.

As this announcement is made, the Social Security program confronts pressing financial challenges. A report from Social Security and Medicare trustees warns that the trust fund may only be able to pay full benefits until 2035, after which only 83% of scheduled benefits could be funded without corrective measures. This program is primarily financed through payroll taxes from workers and their employers, with the maximum taxable earnings rising to $174,900 for 2025, up from $168,600 in 2024.

On the campaign trail, Vice President Kamala Harris and former President Donald Trump have proposed different strategies for securing Social Security’s future. Harris advocates for higher taxes on the wealthy to protect Social Security, while Trump emphasizes growth and pledges not to alter retirement ages or the program itself. He has promoted tax cuts for older Americans, declaring on Truth Social that “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!”

Lawmakers have introduced various proposals to tackle the impending funding shortfall. The Republican Study Committee suggests measures like increasing the retirement age and reducing the annual COLA. However, these proposals have not been universally accepted and have sparked concern from advocacy groups. Linda Benesch from Social Security Works criticized potential cuts to retirees’ benefits, pointing out inadequacies in the Republican budget plan.

Meanwhile, discussions continue over adopting alternative methods for calculating cost-of-living increases. Some have advocated for using the Consumer Price Index for the Elderly (CPI-E) to better reflect costs significant to seniors, such as healthcare and medication, differing from the current CPI used by the Bureau of Labor Statistics.