The official 2025 cost-of-living adjustment (COLA) for Social Security payments was announced by the Social Security Administration (SSA) on October 10, 2024. This came after the September Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was released.
The 68 million or so Americans who depend on these benefits are looking forward to this news very much. About one-third of retirees depend on their pension for their main source of income, so the change is big, especially now that prices are going up due to inflation.
The SSA uses the CPI-W to figure out how much to change Social Security payments every year to account for inflation. It is calculated by the Bureau of Labor Statistics (BLS) as the percentage rise in the CPI-W between the highest third-quarter average of the current year and the highest third-quarter average of the prior year.
SSA will figure out the change in the CPI-W from the third quarter of 2023 to the third quarter of 2024 once the September CPI-W is made public. The last COLA will be rounded to the nearest tenth of a percent, and it will start to take effect in early 2025.
One thing that retirees really want is for the way the COLA is figured to be changed. Seventy-five percent of people who answered the poll by The Senior Citizens League (TSCL) want to change the Consumer Price Index for the Elderly (CPI-E) to the CPI-W as the basis for the COLA.
The CPI-E is a special measure that is meant to show how older adults spend their money and take into account costs like housing and health care that affect retirees more than other people. If we move to the CPI-E, seniors might get bigger raises in their benefits, which would help them better handle their money needs.
Experts think that the COLA will be about 2.5% in 2025, which is less than the 3.2% COLA that was given in 2024. This is based on current economic data. Even though a lower COLA means that inflation is lower, many retirees may not be able to keep up with the rising cost of living with the smaller raise.
TSCL did a study in 2024 and found that retirees are getting more and more worried about how their savings will be lost because prices are still high. In fact, 78% of those who answered said that their regular costs for things like food and housing had gone up since last year.
A growing fear of running out of money in retirement is something that many people worry about. Within the next ten years, Social Security will likely run out of money. At the same time, Americans are finding it harder to save enough for retirement because people are living longer and the cost of living is rising.
Since the COLA for Social Security payments will be smaller in 2025, retirees may need to think about moving to a cheaper area to make their money last longer. Some states are better for retirees because they have lower costs of living and tax breaks.
Here are the top 11 states that can help offset the impact of the 2025 COLA on Social Security benefits
- South Carolina: The typical home price is low, and the cost of living is low. South Carolina is also tax-friendly for retirees because Social Security benefits are not taxed, and seniors can deduct up to $10,000 of other retirement income.
- Nevada: Nevada has a slightly higher cost of living than the rest of the country, but it is a great place for retirees to live because it doesn’t have a state income tax and its property taxes are very cheap. Food and prescription drug exclusions also help keep costs down.
- Texas: Many people choose to retire in Texas because it has no state income tax and a low cost of living. Even though property and sales taxes are high, retirees can buy things like food and drugs without having to pay taxes on them.
- Michigan: The state has a low cost of living, property that isn’t too expensive, and good tax policies for people who are retired. Health care services vary by region but are usually thought to be good.
- Mississippi: This state is known for having a low cost of living and affordable housing. All retirement income is not taxed in Mississippi, which makes it one of the best places for retirees when it comes to taxes.
- Georgia: The cost of living in Georgia is 9% lower than the national average, and home prices are low. This makes Georgia a good place for retirees to live because it is both financially beneficial and nice.
- Delaware: The cost of living is about the same as the national average, and there is no sales tax. This makes Delaware a good place to retire because property is cheap and the weather is mild.
- Tennessee: People who want to retire often choose Tennessee because it has a low cost of living and no state income tax. The cost of homes stays low, and the state has a lot of culture and natural attractions.
- Florida: Florida is a popular place for retirees to live because it doesn’t have a state income tax and has a lot of retirement villages. The cost of living is a little higher there, though.
- South Dakota: South Dakota is still one of the best states for seniors who want to be financially secure and enjoy the outdoors because it doesn’t have a state income tax and housing is cheap.
- Wyoming: Wyoming is the best place for retirement because it has a low cost of living, no state income tax, and cheap housing. Its beautiful nature scenery makes it a popular place for retirees who want peace and security in their finances.