7 Hints the 2025 Social Security COLA Increase Won’t Be Enough for You

Each October, seniors on Social Security get a cost-of-living adjustment to their benefits.

The Social Security Administration (SSA) looks at the rate of inflation and usually adjusts Social Security benefits higher so retirees don't lose purchasing power in the face of rising prices.

The 2025 COLA is 2.5%, which the SSA estimates will put an average of $1,976 a month into retirees' pockets — a $49 increase compared to 2024's average benefits check.

However, for some seniors living on a fixed income, the extra monthly cash won't stretch very far. Here is why the COLA increase might not have the impact you would like.

The size of your benefit check amount depends on several factors, including how many years you spent in the workforce and how much money you earned throughout your working life.

The higher your 2024 Social Security benefits, the more money the 2.5% increase will put in your pocket. On the other hand, if your benefit check is lower than average to begin with, you won't see a huge difference when the 2.5% increase hits your bank account.

In short, while a few extra dollars a month definitely won't hurt your budget, it also won't help that much if your benefit is already smaller than average.

Generally speaking, medical expenses increase at a higher rate than other segments of the economy.

Overall, prices increased an average of 3% between June 2023 and June 2024 — but medical expenses went up by 3.3% during that same time period, according to Peterson-KFF's analysis of data from the Bureau of Labor Statistics (BLS).

Additionally, medical prices as a whole have gone up by 121.3% since 2000 while non-medical expenses increased an average of 86.1% throughout the same timeframe.

Unfortunately, this means that if you spend a lot of money on medical expenses in retirement, those costs will likely increase at a rate that outpaces your annual COLA increase.

Americans' total debt increased to an all-time high of $17.94 trillion this September, according to recent data from the Federal Reserve Bank of New York.

Luckily for many working Americans, average pay rates have gone up faster than the inflation rate over the last 18 months, enabling a large percentage of the workforce to stay on top of household debt.

However, retirees living on a fixed income have much less flexibility in their budgets and don't have the benefit of a wage increase to help them cope with increasing debt.

If you're already struggling to keep up with the demands of a higher cost of living as well as the high interest rates on consumer debt, your COLA increase likely won't do much to get your finances in order.

While wage growth has outpaced inflation over the past year, those gains have not been enough to keep folks ahead of elevated housing prices.

The median cost of a home in 2023 was five times higher than the median income of American households, according to the Harvard Joint Center for Housing Studies.

Securing a home with prices that high is hard enough for a working family, much less for a retired couple on a fixed income.

Plus, while housing prices have gone down in some parts of the country, they remain sky high in others. If you're unlucky enough to live in a place where the latter is true, the extra $50 or so you'll get each month from your COLA increase won't make much of a dent.

If you can supplement your Social Security check with income from a retirement savings account, you won't have to rely solely on your COLA increase to keep up with inflation.

Unfortunately, the flip side is also true: If you rely solely on Social Security, you'll have a much harder time making ends meet with just a 2.5% increase.

Around 40% of retirees live on Social Security income alone, according to the National Institute on Retirement Security.

If you're 65 or older, you likely qualify for Medicare, the federal health insurance program for seniors. However, standard Medicare Part B premiums are going up in 2025 by $10.30 a month while the plan's deductible will increase by $17.

If you're on Medicare, this means some of your COLA increase will evaporate thanks to these increases.

Although inflation appears to be stabilizing, the prices of goods and services that have climbed over the past few years aren't likely to fall any time soon.

If you're already paying more than you once did for utilities, groceries, pet care, and other expenses, the slight COLA increase won't be enough to compensate for the comparatively high cost of living that makes it hard to get ahead financially.

Even if you identify with some or all of the circumstances listed above, a stress-free retirement is still within reach.

Working with a financial advisor, prioritizing paying off credit card debt, and sticking to a strict budget are all solid ways to improve your financial health.

With a little planning and effort, you might find yourself in a better fiscal situation this time next year, which can help you make the most of 2025's COLA increase.