There will be a smaller COLA for about 70.6 million people getting Social Security in 2025 compared to previous years. This is because inflation has recently slowed down. According to analysts, the Social Security Administration will officially announce that benefits will go up by 2.5% in 2025.
In comparison, benefits went up by 3.2% in 2024 and by an even bigger 8.7% in 2023. Inflation was at its biggest level in forty years in 2023, which caused that big jump.
Sherri Myers, who lives in Pensacola City, Florida, and is 82 years old, is not hopeful about the 2025 Social Security cost-of-living increase (COLA). Even though her benefits will go up, Myers doesn’t think it will have a big effect on her ability to pay for daily things. “It won’t make a difference,” she said, emphasising how hard things are for her.
Already, inflation has eaten away at her savings, leaving her with no extra money. Myers is constantly looking for work to supplement her current income, which includes a small pension and Social Security payments, even though her benefits are expected to go up.
And she’s not the only one. The AARP thinks that the expected 2.5% COLA for 2025 would mean an extra $48 a month for the average retiree who lives on about $1,920 a month. Bill Sweeney, Senior Vice President of Government Affairs at AARP, thinks that many seniors will feel that this raise is not enough to keep up with the cost of living.
Sweeney said, “I think a lot of seniors will say that this is not really enough to keep up with prices.” He did say, though, that the smaller COLA shows that inflation is slowing down overall, which is good for the economy.
This news comes at a time when Social Security is having a hard time paying its bills over the long run. The Social Security and Medicare trustees’ report, which came out in May, says that starting in 2035, the Social Security Trust Fund will not be able to pay full payments. The government will only be able to pay 83% of planned benefits if the fund runs out.
Payroll taxes paid by both workers and companies are the main source of money for Social Security. The highest amount of money that would be taxed by Social Security was raised from $160,200 in 2023 to $168,600 in 2024. It is expected that this ceiling will go up to $174,900 in 2025.
The impact of the COLA on the Social security shortfall
As the 2024 presidential campaign goes on, Social Security has become a major problem, with candidates offering different ideas on how to fix the program’s lack of money.
Kamala Harris, the vice president-elect, has promised to protect Social Security by making sure that the richest Americans pay more in taxes. Harris says that to protect the program, “making millionaires and billionaires pay their fair share in taxes” is very important on her campaign website.
Trump, who used to be president, has promised not to cut Social Security or raise the age of retirement. On Truth Social, he said, “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!” to show his support for tax cuts for older Americans.
Trump has said that he will focus on economic growth as a way to fix Social Security’s money problems. In a late August talk with AARP, Trump said again that he has no plans to change anything about Social Security. He said, “I don’t want to do anything that has to do with raising the age.” “I’m not going to do that.”
In her own talk with AARP, Harris pushed for taxing billionaires and big businesses to help pay for the program’s shortfall. “We’ll make up the difference by taxing billionaires and big businesses more fairly. We’ll then use that money to protect and improve Social Security for the long term.”
But the two candidates aren’t the only ones who are worried about it; many legislative suggestions have been made to fix Social Security’s money problems. For example, the Republican Study Committee’s plan for Fiscal Year 2025 says that the yearly COLA should be cut and the retirement age should be raised.
Trump has not backed this idea, though. An lobbying group for the program called Social Security Works is worried about the Republican Study Committee’s ideas. Lisa Benesch, a spokeswoman for the group, said, “We are worried about this Republican Study Committee budget and the parts of it that would cut retirees’ benefits.”
Social Security Works has backed Harris for president because they believe she will protect the program. Harris co-sponsored a bill as a senator from California that called for the CPI-E, a consumer price index designed for older people, to be used to figure out COLA.
This index looks at how older Americans usually spend their money, like how much they spend on health care and prescription drugs, which tend to go up faster than other costs. The Consumer Price Index (CPI) from the Bureau of Labor Statistics is used to figure out the COLA right now. The CPI tracks changes in prices across the economy as a whole.