Retirees Could Be Making More Money in 2025 Thanks to 'Significant' Cost of Living Adjustment

Good news for retirees: The amount of your social security check is in for a boost.

Starting next year, in 2025, retirees will see a boost in their Social Security checks thanks to a notable cost-of-living adjustment (COLA) — but this adjustment is more moderate than in previous years, which is actually a good thing.

These annual adjustments help retirees maintain their purchasing power in the face of rising living costs. Given that many seniors rely on Social Security for a significant portion of their income, a higher COLA can make a meaningful difference in everyone's financial well-being, but it can also signify high inflation and have negative tax implications for cash-strapped retirees.

Read on for more information about the adjustment and how it might translate into a more stress-free retirement. 

The Senior Citizens League has updated its COLA expectations for 2025 and anticipates a 2.57% increase following a better-than-expected inflation reading in May. While this is slightly lower than the previous estimate of 2.66%, a lower number represents a positive adjustment for retirees — here's why.

High inflation has eroded the purchasing power of Social Security benefits. Retirees who started receiving benefits in 2000 have lost 36% of their buying power due to inflation outpacing their benefit increases.

Low and stable inflation is beneficial for Social Security recipients. Historical data shows that buying power improves when COLA is less than 3%. Since 2010, there has been a 13% cumulative increase in purchasing power when COLA was under 2%.

Plus, higher COLAs can lead to higher taxes on Social Security benefits. As benefits increase, more retirees may find their benefits taxable, reducing their net income since there's no inflation adjustment built into the law. Lower COLAs can help keep more benefits tax-free, easing the tax burden on retirees.

The Federal Reserve remains cautious about inflation, which could influence future COLA estimates. Although May's CPI numbers were encouraging, inflation is still above the Fed's 2% target, keeping the outlook for COLA uncertain.

A lower COLA for 2025 is a positive development for retirees. While you'll still receive a higher Social Security check, it also means better overall purchasing power and potentially lower tax liabilities. 

This adjustment can provide much-needed financial relief and stability for those who depend on Social Security, helping them to better cope with the rising cost of living. Retirees should view this potential increase, however slight, as a welcome boost to their financial security in the coming year.