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A Serving of COLA with Your Social Security

Blank social security card, and 1040 us individual tax income return form.

When you are drawing Social Security benefits, it’s hard to know whether to cheer for–or against–inflation during the July-September stretch. This is because Social Security’s cost of living adjustment (COLA) for the next year is based on changes in the Consumer Price Index during the third quarter.

The Senior Citizen League has projected a COLA of 2.7% for 2025. Put another way, there will be a monthly increase of $45 for the average Social Security beneficiary.1

 “Honor your father and your mother, so that you may live long in the land the Lord your God is giving you.” Exodus 20:12

Inside the numbers

Social Security’s annual COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. Some advocates say that the CPI-W does not accurately reflect the impact of inflation on retirees. They are pushing for a change, and asking for the COLA to be based on the Consumer Price Index for Americans aged 62 and older (CPI-E).

Proponents argue that CPI-E is more accurate because seniors devote a higher percentage of their monthly budget to housing expenses and medical care. But critics explain that CPI-E values aren’t always higher than those on other CPI measures, so a change would not automatically translate to higher COLAs.

Social Security’s Role in Retirement

One of the most challenging financial decisions lies in deciding when to start drawing Social Security benefits. You can start taking them as early as 62, or you can wait until as late as 70. There’s no right answer, but there are a few guidelines to consider.2

When to consider taking benefits earlier:

  • You are no longer working and need the money
  • You’re in poor health
  • The higher-earning spouse might be in a position to wait to file

When to consider waiting:

  • You are still working
  • You or your spouse are in good health and may live beyond the average life expectancy
  • You’re the higher-earning spouse; delaying may help your surviving spouse receive the highest possible benefit

To help guide your decision, we have a software program that highlights the pros and cons of taking benefits at various ages. The program takes into consideration a wide-range of factors, and we’ve found that it can help clients as they evaluate their next step.

Mick Owens, author of the popular book Diamond of Life: The Five P’s of Success and Significance, offers his perspective on Social Security and preparing for retirement: “If you don’t set aside a sufficient amount in investment to produce your needed income when you can no longer work, you won’t have the second source to produce any or sufficient income.”

Social Security typically announces the COLA for beneficiaries in October. If you’ve started to draw benefits, the COLA will go into effect in 2025. If you haven’t started to draw benefits, we can help you weigh the pros and cons of when choosing the best time to start.

  1. SeniorLeague.org, May 15, 2024
  2. Schwab.com, July 18, 2023

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