When somebody relies on Social Security to cover basic expenses like food, housing, or medical care, any change in their benefits can feel like a roller coaster ride. 2025 brings a different picture: a lower cost-of-living adjustment (COLA), reflecting a more stable economy, but one that could also complicate the finances of those already facing economic challenges. And it’s not just about numbers; it’s about people who rely on this income to live decently. With inflation more under control, but prices still high in many essential sectors, the key question is: how to manage these changes and plan for the future?
What is COLA?
The COLA (Cost of Living Adjustment) is a mechanism that adjusts the payments received by Social Security beneficiaries to protect their purchasing power in the face of inflation, in other words, it ensures that the beneficiaries’ pockets do not notice that we are in a period of inflation (if inflation goes up, the COLA goes up, and likewise when inflation goes down).
And what has happened this year?
That accustomed to a high rate of inflation in recent years, the situation is beginning to stabilize, and, by 2025, the COLA will be 2.6% (compared to 8.7% in 2023 and 3.2% in 2024). This is because, as we have said, the situation is beginning to stabilize, and, likewise, the prices of essential goods such as energy (for example, oil now costs less than $70 per barrel).
However, while this is very good news, it is not so good news for retirees and Social Security dependents, who will see their monthly check have “less” money in it, especially in many parts of the country where food and utilities continue to maintain stratospheric prices.
What does the FED have to do with this?
The Federal Reserve has made a very important decision since September 2024, it has decided to make interest rate cuts (for the first time in years). This could help people who still have debts (such as mortgages or loans), but, on the other hand, the lower COLA adjustments may leave many retirees feeling that their income is not enough to cover their expenses.
On the part of the FED, they believe that inflation will settle at 2.1% by the end of the year, which would mean that in the coming years, the adjustments will be just as small.
So, are we losing money?
It’s not losing money as such, the Social Security payment will continue to be the same base, however, the “extra” that we add from the COLA will be less, this will affect above all the purchasing power of the beneficiaries, since, although inflation is stabilizing, there are still many basic products that have not lowered their prices. That is, they will receive the same money that they have been receiving for years but they will be able to buy fewer products or goods due to high prices.
And how can we prepare for this?
There are changes that are not easy to assimilate, but it is important to organize and plan for the future. First of all, identify what you can save on and prioritize essential expenses (housing, food and medical care).
In case you have loans or mortgages, one of the options you can count on is refinancing, now that interest rates have dropped this will help you free up a bit of monthly expenses.
We may not like the changes very much, but 2025 is going to be an opportunity to return the country to inflation levels that we have not seen for years, even if that means that retirees and people dependent on the SSA are going to face situations that are perhaps a little more overwhelming in economic terms. But remember, it is a small step to return to normality!
