Social Security’s COLA in 2025 won’t be bad news after all

Millions of older Americans rely on their monthly Social Security benefits to make ends meet. And fortunately, those benefits are eligible for an annual cost-of-living adjustment (COLA).

The purpose of COLAs is to help Social Security recipients maintain their purchasing power in the face of inflation. Over time, the cost of living naturally tends to rise.

Stagnation of Social Security payments would likely push those who rely on them into poverty for years. But because these benefits increase year after year in line with inflation, seniors can cover their expenses within reasonable limits even if Social Security is their primary source of income.

Most retirees who collect Social Security benefits want their monthly benefits to increase as much as possible from one year to the next. And because of that, many older Americans could be in for a big disappointment in the new year.

Initial estimates suggest that Social Security contributions will be 2.5% in 2025. This would make the COLA increase in 2025 the lowest in years and could put many retirees in financial difficulty.

While there may seem to be nothing but bad news regarding Social Security's COLA in 2025, things are actually not as dire as they may seem. Here's why.

There is still time to change this number

The official Social Security COLA for 2025 is unlikely to essentially higher than 2.5%. But could it end up being higher than 2.5%? Yes.

This number is merely an estimate based on inflation data from July and August. An official COLA will not be calculated until September inflation data is available.

If inflation picks up this month, retirees receiving benefits could see a raise of more than 2.5% in 2025. Although it may not much higher, every little contribution helps.

A lower COLA means a weakening of inflation

Social Security COLAs are directly tied to inflation, so if one goes down, it means the other will go down too. In other words, a lower COLA in 2025 means inflation has cooled off. If this trend continues, retirees receiving Social Security benefits could gain in the form of lower prices in stores and in purchasing power in general.

It is not a worst-case scenario

The idea of ​​a smaller Social Security increase in 2025 may seem disappointing. But remember, next year's COLA isn't set in stone. Even if 2.5% is the official number, that's not so bad, since it also suggests easing inflation.

If you're concerned about getting by on a smaller raise, consider making changes that will allow you to stretch your Social Security income further. These could include:

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• Moving to a smaller home

• Moving to a region of the USA where housing and living costs are cheaper

• Get rid of your car if you live in an area that is easily accessible on foot or has public transport

• Trade in your current car for a cheaper one if your driving needs are minimal

• Check Medicare plan options each year to see if there is a lower-cost option. You can do this from October 15 to December 7 during open enrollment.

If you manage your expenses wisely, you may be able to make your 2025 Social Security COLA work for you—no matter how high it is.

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Prediction: Social Security's 2025 COLA won't be bad news after all was originally published by The Motley Fool