Perspectives on Money: What Retirees Need to Know About COLA Changes


In recent years, financial security during retirement has taken center stage in discussions surrounding the well-being of retirees. This is particularly due to the shifting landscape of Social Security benefits, which are a cornerstone of retirement income for many Americans. As we look towards the future, especially the year 2025, questions arise about the adequacy of these benefits in keeping up with the cost of living, which has been an ongoing challenge for retirees.

Impact of Cost-of-Living Adjustments (COLAs)

The Social Security program provides a cost-of-living adjustment (COLA) annually, intended to offset inflation by increasing retirement benefits. This adjustment is crucial for retirees, affecting their ability to manage expenses. In 2023, the COLA saw a significant increase, providing a much-needed boost in income for retirees. However, this was an exception rather than the norm, with previous years witnessing more modest adjustments.


For 2024, the COLA was set at 3.2%, a noticeable decrease from the previous year’s substantial rise. While above average for the program, this adjustment still falls short when considering the long-term trend of increasing living costs. Looking ahead to 2025, early predictions suggest an even smaller increase, potentially the lowest in recent years, with estimates suggesting a COLA of around 1.75%. Such a small adjustment raises concerns about the sufficiency of Social Security benefits in supporting retirees’ financial needs.

The calculation of the COLA is based on inflation data, specifically the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), focusing on the third quarter of the year. This method ensures that the adjustment reflects recent economic conditions, but as inflation rates fluctuate, so too does the adequacy of the COLA in addressing the real-world expenses faced by retirees.

Role of Social Security Benefits

Social Security benefits play a pivotal role in the retirement plans of many Americans. For a significant portion of retirees, these benefits represent the majority of their retirement income. In fact, for some, Social Security is nearly their sole source of income in their later years. Despite this reliance, the average monthly benefit amount falls short of replacing pre-retirement income, highlighting the importance of additional retirement planning.

The maximum Social Security benefit varies depending on several factors, including the age at which one retires. While the figures may seem substantial at the upper end, they are not reflective of the experience of the average retiree. Most beneficiaries receive much less, underscoring the gap between Social Security benefits and the actual costs of living in retirement.

For those approaching retirement, obtaining a personalized estimate of Social Security benefits is a critical step in planning for financial independence. Such estimates provide a clearer picture of what to expect and help in strategizing additional savings and investments needed to maintain one’s standard of living post-retirement.

Conclusion: Beyond Social Security

In conclusion, while Social Security is an essential component of retirement income, it is clear that the benefits alone may not suffice to meet the financial needs of retirees, especially in the face of modest COLAs and rising living costs. The necessity for comprehensive retirement planning, including investments in IRAs, 401(k)s, and other savings vehicles, cannot be overstated. As retirees navigate the complexities of financial planning, it becomes evident that achieving a secure and comfortable retirement requires more than just relying on Social Security benefits.

Are you ready to ensure a financially secure retirement beyond Social Security? It’s time to take control of your future. Speak with your trusted advisor today about strategies for creating a robust retirement income that keeps pace with rising living costs.

Brad Pistole, a native Missourian, is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management. Syndicated Columnists is the sole provider of this material, both written and conceptual, for this column. All rights reserved.

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