For those who are keeping tabs on Social Security's 2025 cost-of-living adjustment (COLA), a bit of bad news just emerged. The most recent estimate from the nonpartisan Senior Citizens League puts 2025's COLA at 2.57%.
That's a decrease from previous estimates. And it's a notably smaller COLA than the 3.2% raise seniors received at the start of 2024.
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Now before we go any further, it has to be noted that this most recent estimate is just that -- an estimate. We won't have an official read on 2025's Social Security COLA until October, since that raise is calculated based on inflation data from July, August, and September.
But based on recent inflation trends, it is fair to assume that 2025's Social Security COLA will be smaller than 2024's. That's not a totally bad thing, though.
See, a smaller COLA is an indication that inflation is easing. So what retirees lose in the form of a smaller boost, they gain in the form of more affordable groceries, gas, utilities, and more.
But that's not the only hidden benefit of a smaller COLA. There's another reason retirees shouldn't be too upset over that 2.57% projection.
Smaller raises could help delay Social Security cuts
Social Security is facing a financial crisis. In the coming years, the program will be burdened with benefit claims as older Americans retire in droves. But on top of having to pay out more benefits, Social Security will also lose out on payroll tax revenue due to an uptick in retirements. And that's problematic, since that's the program's primary source of revenue.
Social Security can tap its trust funds to keep up with scheduled benefits for about 10 years. But once those trust funds run dry, benefit cuts will be on the table.
How does that tie into next year's Social Security COLA? The smaller that raise is, the less Social Security has to pay out across the board -- and the less of a strain there is on the program's limited financial resources.
Put another way, a larger COLA might bring Social Security a bit closer to having to implement benefit cuts. So while retirees may want to see their benefits increase more in 2025, a smaller increase could be a factor that helps delay benefit cuts a bit longer.
A problem lawmakers need to address
Of course, an ideal scenario would have Social Security avoiding benefit cuts completely. A broad reduction in benefits could be catastrophic for the millions of retirees who rely heavily on Social Security today.
This is a situation that lawmakers will clearly need to address, and soon. But for now, a smaller Social Security COLA in 2025 could be good news in the context of benefit cuts.
That doesn't mean a smaller COLA won't hurt retirees. But those who stand to struggle in light of one may need to take outside steps to give their income a boost. Those could include downsizing or working part-time.
Social Security allows seniors to work while receiving benefits, although those who have not yet reached full retirement age are subject to an earnings limit. But 2024's earnings limit is $22,320 for Social Security recipients, and $59,520 for those reaching full retirement age before the end of the year who haven't gotten there yet. These limits give seniors plenty of leeway to boost their income before getting to a point where part of their Social Security check is withheld due to earning too much.
