The Social Security Administration has recently released a new COLA that is expected to result in an increase of retiree paychecks from next year 2025. The Social Security increase for COLA is intended to guarantee that the pension scheme’s beneficiaries are in a position. It afford the necessities that are as a result of factors such as inflation.
However, all of the recipients will observe the increase and the extent of the increase will depend on some factors such as the state of residence, income, and others.
Some of the states that are likely to receive more Social Security benefits than the others include the ones with higher median income.
Regarding the increase of the inflation rate this year, it is projected to be 2 percent. 6% annually, which will be the lowest level since 2021, but it will still be an important source of financing retirement.
Explaining COLA How Cost Of Living Adjustments Affect Your Social Security Benefits
COLA is not totally an income, but it has elements like inflation and other factors of the local environment. The COLA has the role of ensuring that the incomes of the retirees are protected from the effects of inflation and this is in relation to a rise in the price of goods and services.
For instance, New Hampshire, Maryland, and Massachusetts are some of the states that have relatively higher cost of living; therefore, the bigger boosts in benefits.
These areas are costly especially on how much the retirees are expected to pay for house rents, health care or activities of daily living thus the need to have COLA increase to maintain the current standards.
Despite the modest 2. 6% as predicted for 2025, this change is necessary to offset inflationary expenses in these areas.
Moreover, the COLA also varies from one area to another since the economy of the United States of America varies from one state to another.
Even a small percentage increase is a lot of money for retirees especially in the urban areas where the cost of living is on the rise and the retirees need some money to cater for their needs.
How the Social Security increase for COLA Is Calculated
The COLA is determined annually through a method that is followed in order to arrive at the figure. The Social Security Administration considers the third quarter percentage changes in the consumer price index from one year to the next.
This information is used in the computations for the next COLA. If the rates are low, it means that the cost of living for Americans has not risen in the past months on average.
Higher rates are indicative of higher cost and steeper inflation rate. “In the end, the Social Security Administration decides the cost-of-living adjustment according to the anticipated inflation rate in the following year,” Krieg Tidemann, an assistant professor of economics at Niagara University, said via email.
Watch the Consumer Price Index
The CPI for August increased 0.2% on a seasonally adjusted basis, the same increase as in July, according to The U.S. Bureau of Labor Statistics.
In the previous 12 months, all items nudged up a mean 2.5%. Inflation so far in 2024 has been lower than inflation that was hitting 40-year highs such as a rate of 9.1% in June of that year but its gains have generally accelerated.
It is useful to monitor the CPI continuously for estimating future years. “A important thing to bear in mind that COLA is based on inflation as well,” added Wisconsin-based financial advisor Jeremy Keil of Keil Financial Partners, in an email. That could signal inflation is still cooling, and rates are moving into line with their historical benchmarks over previous decades.
Ways For Social Security Beneficiaries To Make More
- Increases to the COLA in recent years are likely helping retirees manage well against current costs. That being said, there may well be people who want or think they need a higher income to maintain their standard of living.
- How taking a part time job can help retirees bring in additional income. If you are comfortable and prefer working from your own home this can be done for most of the jobs if not all for us retirees who look for some work with flexibility.
- Before you reach full retirement age, if you claim benefits and are working a job, you can make up to a threshold amount.
- If your income is higher than that, this will lower your benefits. Once you reach full retirement age, there will be no limits on what you can earn.
- More supplemental income could come from retirement accounts like a 401(k) or 403(b), an IRA, and pensions.
