Title: Many Retirees See 2025 Social Security Cost-of-Living Adjustment Falling Short
The 2025 Social Security cost-of-living adjustment, or COLA, took effect recently, and senior beneficiaries noticed a 2.5% increase in their payments in January. This yearly adjustment aims to keep Social Security benefits in line with inflation. However, a recent survey revealed that the majority of retirees felt the increase was inadequate.
In the poll, 54% of retirees deemed the COLA insufficient, while only 25% believed it was appropriate. Furthermore, an overwhelming 81% of respondents stated that the COLA wouldn't aid them in managing their essential living expenses. The reasons for this sentiment are understandable when we consider the increased expenditures in housing and healthcare, two significant categories that impact retirees more than the average population.
Housing costs, which account for a larger percentage of retirees' income, escalated by 4.6% annually in December 2024. Remarkably, this was the least significant increase since early 2022. Healthcare expenses, another burdensome cost for retirees, surged by 3.4% within the 12-month period ending in December. Both of these increments surpassed the 2.5% COLA and are often the most substantial expenses senior beneficiaries face.
Food inflation, which has been relatively tame in recent times, has nevertheless been a significant driver of inflation in the United States during the past few years. As a result, despite the 2.5% raise, the current COLA has struggled to keep up with the senior beneficiaries' expenses.
Regarding the COLA, 97% of respondents agreed that it should have exceeded a 3% adjustment to compensate for the escalating costs of living. Surprisingly, only 14% of retirees claimed that their spending habits hadn't been affected by inflation.
The survey uncovered a lack of confidence in the formula utilized to compute the Social Security cost-of-living adjustment. Nearly 70% of retirees acknowledged that the current method does not accurately reflect the inflation senior citizens face.
At the core of the issue, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to calculate COLA, despite it not accurately reflecting older Americans' inflation. An alternative index, the Consumer Price Index for the Elderly (CPI-E), is more suitable for this purpose because it accounts for the higher healthcare expenditures and unique spending patterns of seniors. However, the SSA remains reluctant to adopt the CPI-E, leading to COLAs that underestimate the true cost of living for retirees.
Advocates like Shannon Benton from The Senior Citizens League recommend using the CPI-E, which could have resulted in a 3% COLA increase in 2025, equating to around $58 per month on average for beneficiaries. Although this is a small step, it could help to better protect the purchasing power of Social Security benefits for seniors in the long run.
Many retirees are struggling to manage their essential living expenses with the current COLA, as housing costs and healthcare expenses both increased by more than 2.5% annually, surpassing the COLA adjustment. In the survey, a significant number of retirees expressed that they believe the COLA should have exceeded a 3% adjustment to keep up with their rising expenses.