Why a Smaller Social Security Raise in 2025 Could Be Good Thing for Retirees

When you have a fixed income, waiting on baited breath, and wallet, to see how much your Social Security benefits will fluctuate each year can be stress-inducing. The Social Security Administration announces the cost-of-living adjustment, or COLA, for 2025 in October. This adjustment is designed to help seniors keep pace with inflation , ensuring that their benefits maintain purchasing power.

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For many retirees, the COLA can be a crucial factor in their annual budgeting and financial planning. However, projections indicate that in 2025, retirees may see a smaller Social Security raise. While this might seem like bad news at first glance, there are a few reasons why it could be a positive development. Here’s why .

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COLA 2025 Quick Take

The benefit amount retirees receive each year is directly tied to the COLA. Though the actual increase won’t be definite until October 2024 there just was a 2.9% increase in July. However, according to the Senior Citizen League, here’s what retirees can expect: “The TSCL Social Security cost-of-living adjustment (COLA) model predicts that the COLA for 2025 will be 2.5%, based on a decline from 2.9% to 2.5% in consumer price data. A COLA of 2.5% would raise the average monthly benefit for retired workers of $1,920 by $48.”

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Lower Inflation Means Fewer Price Hikes

A smaller Social Security raise is often a reflection of lower inflation. Though the numbers on your checks may seem smaller than they should, at least the ones on your grocery bill aren’t getting much larger. Simply put, the raise is smaller because your expenses aren’t increasing too much — hopefully.

The COLA is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, which measures changes in the cost of goods and services. While larger raises may feel more generous, they are often tied to rapidly rising prices, which can be challenging for those on fixed incomes. When inflation is high, retirees can see their purchasing power erode quickly, with essentials like food, energy and healthcare becoming more expensive.

You Can Take a Breather From a Volatile Economy

A skyrocketing rate of inflation is often a sign of an overheated economy, which can lead to more volatility in markets, interest rates, financial systems and your overall annual cost of living. In contrast, moderate inflation suggests a more balanced economy, which tends to experience less turbulence.

Retirees, many of whom rely on retirement benefits and investments for supplemental income, are better suited for times of economic stability. A smaller COLA could signal that the Federal Reserve and other economic institutions have successfully managed to quell inflation for the time being, leading to a more predictable financial landscape and benefit increases.

It Gives Social Security a Fighting Chance To Be Sustainable

Social Security is one of the most crucial safety nets for retirees, and yet its long-term solvency has been a subject of debate by experts and Social Security beneficiaries alike for years. With more retirees collecting benefits and fewer workers contributing to the system, many economists worry about the program’s sustainability.

A smaller COLA in 2025 may help alleviate some of this pressure. While Social Security is designed to adjust benefits according to inflation and cost-of-living increases, smaller raises mean the program pays out less overall, which could extend its financial viability. This could be particularly important for younger retirees or those planning to rely on Social Security in the decades to come.

Final Take To GO: Smaller Raises Could Equal Big Benefits

The bottom line is that while it’s natural to hope for a higher Social Security raise each year, a smaller COLA in 2025 could bring unexpected benefits. Though making only about $50 per month more than you were may seem worrisome, lower inflation and a more stable economy sure isn’t. For retirees, the focus should be on the bigger picture — maintaining purchasing power, financial stability and adjusting personal strategies to make the most of their retirement years.

Simply put, a smaller raise doesn’t mean retirees are being shortchanged. Rather, it reflects a healthier economic environment, which could lead to greater financial peace of mind for retirees and those who follow them into retirement. When you retire, stay informed about both Social Security adjustments and broader economic trends to ensure you’re making the best financial decisions to maximize your nest egg.

This article originally appeared on GOBankingRates.com : Why a Smaller Social Security Raise in 2025 Could Be Good Thing for Retirees