The United States is a very vast country with an economy that, although stable at the federal level, varies from one state to another in terms of the cost of living, which includes rent, food, and medical services, among other items. For retired people, the cost of living is really important since they mostly depend on a fixed monthly income, especially those who only receive Social Security benefits.
Although financial education should teach us all that Social Security payments are not designed to cover 100% of the living costs of a retiree, many reach retirement age in unfavorable conditions and end up depending entirely on this monthly income. With stable but constant inflation, these individuals face the risk of losing purchasing power due to the increase in the prices of products and services, and this is where the cost of living adjustment (COLA) comes into play.
Good and Bad News for Social Security Beneficiaries — Announcement of COLA increase
While in 2023 Social Security benefits and others such as SNAP benefits increased by 8.7%, in 2024 that increase stood at 3.2%, reflecting a drop in post-pandemic inflation and marking the trend that will continue heading into 2025.
As you already know, the COLA increase is determined by the Consumer Price Index (CPI-W), which compares data from the third quarter of one year with that of the previous year and generates a percentage that translates into increases for beneficiaries. According to the Senior Citizen League, retirees and other recipients of these benefits can expect no more than a 2.5% increase for next year. Although it will be announced in mid-October, it will begin to apply from January 1, 2025.
It is good and bad news because it means that inflation has stabilized and cooled, and the prices of products and services are not going to increase excessively (this is the good news). At the same time, pension payments, Supplemental Security Income (SSI), and Social Security Disability Insurance (SSDI) will increase only slightly, matching that inflation.
A Less Volatile Economy in the United States Is a Relief for Social Security Beneficiaries
It’s a relief for Social Security beneficiaries because a less volatile economy means that inflation has stabilized, and the prices of goods and services will not rise unreasonably. Retirees and others who rely on a fixed income, such as Social Security, are especially sensitive to changes in the cost of living. If prices rise rapidly (high inflation), their benefits lose value and cannot cover their basic needs in the same way.
With lower and more stable inflation, beneficiaries do not face the constant threat of sudden increases in essential products such as food, housing, and healthcare. Although the cost of living adjustments (COLA) that increase their benefits may be smaller in times of lower inflation, keeping prices in check reduces the risk that their income will be eroded quickly.