Are you getting Social Security payments or planning to retire soon? Even if these payments aren’t huge—around $2,000 a month for many people—they still matter, especially with rising costs due to inflation.
Here are six important things retirees should know about Social Security Cost-of-Living Adjustments (COLAs).
1. COLAs Reflect Last Year’s Inflation
Social Security payments change based on how much prices increased the year before. The adjustment is not random; it’s calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
For example, the 2.5% COLA for 2025 is based on price increases in 2024. This means retirees will get about $50 more per month on average.
2. Payment Increases Are Different for Everyone
Not everyone will see the same increase in their monthly checks. The 2.5% rise is applied to your current benefit amount.
So, if you were already getting more than average, your increase will be higher in dollars. If you were getting less, the increase would be smaller.
3. Announced in October
Every year, the Social Security Administration (SSA) announces the COLA in October. The calculation covers the 12 months ending in September, so it doesn’t fully reflect the whole year’s inflation.
4. COLAs Start in January
Even though the COLA is announced in October, it doesn’t take effect until January of the following year. That’s when you will see an increase in your monthly payment.
5. You Don’t Need to Apply
You don’t have to do anything to get the COLA. The SSA automatically adjusts your payment amount and deposits the new amount directly into your bank account.
For those receiving checks, the updated amount will appear in those as well.
6. COLAs May Not Keep Up With Your Costs
Even though COLAs are meant to match inflation, they often fall short for retirees.
According to The Senior Citizens League, since 2010, retirees have lost about $370 in monthly buying power. That’s roughly a 20% shortfall compared to what retirees should be getting.
One reason for this gap is the way inflation is measured. The CPI-W tracks prices for working people, but retirees have different spending patterns, especially in healthcare. Some experts believe a better measure would focus on older adults specifically.
What You Can Do?
While it’s okay to debate the fairness of COLAs, making a change would require major policy reforms. Instead of waiting for that, there are steps you can take now to protect your finances:
- Move money you don’t need immediately from low-interest accounts to money market funds, which can offer around 5% annual returns.
- Review your dividend stocks. If a company isn’t increasing dividends to keep up with inflation, consider switching to stocks that do.
Managing your money carefully can make a big difference. In times of rising prices, even small actions matter.
This approach ensures you can maintain financial security despite cost-of-living challenges. Taking these steps not only protects your retirement income but also prepares you for the ever-changing economy. It’s all about being proactive and making smart money decisions.
Disclaimer- Our team has thoroughly fact-checked this article to ensure its accuracy and maintain its credibility. We are committed to providing honest and reliable content for our readers.
Archer Bannister is a journalist with 4 years of experience covering hard-hitting stories. Currently working with Mikeandjonpodcast, Archer specializes in delivering timely and in-depth updates on a variety of topics, including crime news, politics, and national issues affecting the USA. His expertise and dedication to delivering accurate, impactful news make him a trusted voice for audiences seeking to stay informed on critical topics.
