The long-awaited Social Security cost-of-living adjustment (COLA) was revealed in early October, and it disappointed many beneficiaries. Following the 2024 inflation rollercoaster and many people’s benefits falling short of meeting their basic requirements, the COLA was intended to help alleviate some of the financial hardship.
However, the 2.5% rise proposed by the Social Security Administration (SSA) will do nothing to refill individuals who had to dive into their savings to cover their expenses. The 2024 COLA of 3.2% seemed enough until inflation began to surpass it in the first three months of the year, and the danger is that, rather than keeping retirees afloat, the new rise will continue to drown them in their higher expenses.
Kelly LaVigne, VP of Consumer Insights at Allianz Life, told Young and the Invested in an interview: “Inflation took a financial toll this past year, particularly on pensioners, who sometimes rely on Social Security as a primary source of income.
Even with this modification, we understand that many older Americans who rely on Social Security may struggle to pay their bills. Social Security is the primary source of income for 40% of older Americans.
Whether or not this increase is effective, it will have an impact on the lives of 68 million Social Security beneficiaries and almost 7.5 million Supplemental Security Income (SSI) recipients. These are some of society’s most vulnerable people, relying on assistance to make ends meet, and they will face the real effects of an insufficient COLA.
AARP CEO Jo Ann Jenkins discusses the impact of the COLA. “The COLA is an important part of Social Security, ensuring that older Americans have an inflation-protected source of income in retirement. This modification means that older Americans will receive much-needed assistance in affording basic necessities such as groceries and gas.”
What will the new Social Security COLA adjusted benefit be?
The SSA gives out five different kinds of benefits. Each one has its own rules and boundaries, but for the new year, the COLA percentage has been added to all of them.
The new amount will be sent to beneficiaries as their January payments come in, except for the Supplemental Security Income (SSI) payment, which will be sent on December 31, 2024, because that’s when benefits are supposed to be sent out (January 1 is a national holiday, and when payment dates fall on holidays or weekends, the payment is advanced to the previous day when banks are open and mail is delivered to make sure there are no delays in payment that could hurt beneficiaries).
Other COLA associated Social Security changes
A lot of numbers that have to do with current or future claims for benefits are managed by the SSA. These numbers will also change in the new year. For example, the amount of protected earnings needed to get a Social Security work credit will change.
In 2025, you need to make at least $1,810 in protected earnings in a quarter to get a work credit. You can get four credits a year, which equals $7,240 in earnings. To keep up with the rise in pay, the highest amount of money that is taxed by Social Security will also go up to $176,100.
The SSA has also changed the rules on how much people can earn before having their benefits cut off if they keep working after they start getting Social Security. If you’re getting Social Security payments but haven’t reached full retirement age (FRA), you can earn up to $23,400 in 2025, up from $22,320 in 2024. After that, the SSA will start taking money out of your account.
The SSA will take back $1 for every $2 you make over that amount. More money can be saved by people whose FRA is in 2025: $62,160, up from $59,520 in 2024. The SSA takes away $1 for every $3 you make above this amount, but only until the month you hit FRA.