The Cost-of-Living Adjustment (COLA) is made to Social Security benefits annually; however, contrary to popular belief, the COLA is applied to other government benefits as well.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to determine the applied COLA.
In order to calculate a percentage, this metric weighs eight different areas of life expenses, including housing and medical costs.
The third quarter’s CPI-W (July, August, and September) is used by the COLA for benefits, which compares the figure to the previous year. The COLA rise is the percentage that results.
The COLA’s effect on Social Security benefits in 2025
Over the years, numerous beneficiaries have identified a few primary issues with the COLA. The first issue is that during periods like these, inflation can swiftly outpace the COLA rise and make it ineffective.
This occurred in 2024, when inflation in the first half of the year overtook the 3.2 percent increase. While the situation has somewhat subsided as a result of the Federal Reserve’s and the government’s efforts, it is expected to recur in 2025.
Two months have passed since the hike was declared, and costs for essential goods like groceries, housing, and public transit have kept going up.
The second issue is that the COLA index is designed for young urban professionals rather than the elderly, disabled, or underprivileged, who typically spend more on housing and healthcare (some of the fastest-rising costs in general) than any other group.
The CPI-E, which includes the same categories as the CPI-W but gives more weight to housing and medical expenditures to determine the increase, is another index that some supporters have suggested would be better suitable for these people’s circumstances.
Because this index is nearly always higher than the CPI-W, beneficiaries would constantly receive a larger increase in benefits if it were employed.
The system’s design also makes it impossible for beneficiaries to avoid losing purchasing power over time because they are the ones who are believed to be on fixed income and increases are always given after expenses have increased.
In order to survive, many must constantly take money out of their savings or rely on other programs (like SNAP, or the Supplemental Nutrition Assistance Program).
This implies that they will never be able to recover their savings because Social Security is not designed to do so. They will never be able to get a raise that will pay for everything.
This can be saved for people with sound investments and savings.
However, if the rise were more in line with their requirements, it wouldn’t be as much of a concern because those who are living paycheck to paycheck require more government assistance to maintain a decent quality of living.
The COLA’s effect on Social Security benefits in 2025.
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