Social Security: Underwhelmed by 2024 COLA? Experts Predict 2025 Will Be Lowest in 5 Years — How To Prepare
Written by
Adam Palasciano
Edited by
Cory Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
While inflation is finally cooling, costs remain high and retirees are not immune. Social Security is a lifeline for millions of lower-income seniors in the United States. However, the Social Security cost-of-living adjustment (COLA) in 2025 may not be as high as in the past few years.
The Senior Citizens League (TSCL) is projecting a 2025 Social Security COLA as low as 1.4%, the lowest since 2020 when it reached just 1.3%, MarketWatch explained. The years 2021 and 2022 saw some of the highest COLAs in more than three decades at 5.9% and 8.7%, respectively.
According to the Social Security Administration, half of the U.S. population aged 65 and older live in households that receive at least 50% of their income from Social Security benefits. At the same time, about 25% of older households rely on Social Security for at least 90% of their income.
Social Security payment amounts change yearly based on a new COLA. The COLA adjustment is determined based on current inflation levels and offers seniors a new monthly check based on that. High inflation since the onset of the COVID-19 pandemic has resulted in unusually high Social Security COLAs. But as of 2024, seniors saw a COLA adjustment of just 3.2%.
For the past 20 years, the COLA average has been 2.6%, so the predicted 1.4% increase for 2025 would be more than 1% lower than seniors have generally been used to.
Seniors Citizens Still Face Elevated Costs Despite a Smaller COLA
As of December 2023, the consumer price index (CPI) indicated that inflation hovers around 3.3%, which is 0.1% higher than 2024’s Social Security COLA of just 3.2%.
“That’s not necessarily good news if prices for housing, hospital care, auto insurance, and other costs remain at today’s elevated levels,” explained Mary Johnson, Social Security and Medicare policy analyst for the Senior Citizens League, to MarketWatch.
The cost of everyday living remains stubbornly high, and seniors will certainly feel the pain in their wallets with a projected 1.4% COLA next year. This estimate may change as the year progresses, however, as the official announcement for next year’s COLA is not expected until October.
How To Prepare for a Smaller Social Security COLA
There are several smart ways that you can prepare for a smaller increase to your monthly Social Security benefit come 2025:
- Create a Budget: If you haven’t already, work on creating a monthly budget for yourself. This can be on pen and paper or in a digital format such as an Excel spreadsheet or a Google document. Add up your fixed monthly costs plus the average of your fluctuating monthly costs. Take this figure and subtract it from your monthly income to see what’s left.
- Cut Back on Non-Essential Spending: The costs associated with dining out often, going to a coffee shop every day, or grabbing drinks at the bar with friends can add up quickly. Consider reducing your ancillary spending to add more money back to your budget for elevated essential costs such as housing, utilities and groceries.
- Get a Retirement Side Hustle To Make Ends Meet: If you’re up for it, it’s not a bad idea to pick up a per diem or part-time side hustle to add some additional cash flow to your income. Think Uber driver, Instacart shopper, babysitter or dog walker. A little extra work can go a long way.
- Put Cash in a High-Yield Savings Account: If you have extra cash in your checking account (or cash that isn’t deposited in the bank at all), think about putting it all in a high-yield savings account. This type of account pays higher interest than a traditional bank account. It provides risk-free earnings and can help offset elevated costs and a lower-than-average COLA adjustment next year.
- Look for the Best Prices on Groceries and Gas: Instead of stopping at the closest gas station or grabbing the first item you see on the grocery store shelf, take a few minutes to do some price comparisons. If the gas station 5 minutes further away is charging a lower price per gallon or the store brand of your favorite cereal is 50% less, consider the cheaper options. You’ll be surprised how quickly the savings can add up.
Simply depending on Social Security COLAs to afford everything you need isn’t going to cut it. While you might be concerned about being able to afford all of your necessary expenses come 2025, incorporating the tips above can make a positive financial difference, keep you out of debt and leave you with more cash in your wallet each month.
More From GOBankingRates
