Many seniors rely on Social Security for the bulk of their income. For some retirees, those monthly benefits are their only income source.
That's why it's so important that Social Security be designed to keep up with inflation. And to that end, lawmakers decided back in 1975 that benefits would be subject to an automatic annual cost-of-living adjustment (COLA) pegged to inflation.
Now it's too soon to know what 2025's Social Security COLA will look like. That's because COLAs are calculated based on third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
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When there's a rise in the CPI-W from one year to the next, Social Security benefits get a boost. When there's no increase or a decrease, benefits stay where they are. Seniors don't have to worry about getting a smaller monthly benefit from one year to the next.
Based on inflation data from earlier in the year, Social Security's latest 2025 COLA estimate is 2.63% . But clearly, this number has the potential to change -- for better and for worse.
Either way, though, based on how inflation has been trending, it's pretty fair to assume that Social Security recipients will receive some sort of COLA in 2025. It's highly unlikely that we're looking at a no-COLA year ahead. But regardless of what that number amounts to, you should know that there's a better way to boost your retirement income than waiting for your Social Security checks to rise.
Take retirement income matters into your own hands
If Social Security benefits get a 2.63% COLA in 2025, the average retired worker could see their monthly benefit rise from $1,918 to $1,968. This increase, however, does not account for potential Medicare Part B hikes.
Seniors who are enrolled in Social Security and Medicare at the same time have their Part B premiums deducted from their benefits automatically. So depending on what happens with Part B, any COLA seniors receive may not be theirs to keep in full if they're also on Medicare.
But let's say the aforementioned 2.63% COLA ends up being accurate and Medicare Part B does not get more expensive at all. In that case, the typical retiree on Social Security is looking at an extra $50 a month. That may be helpful to some degree -- but it's not a huge increase at a time when basic costs are so expensive.
That's why it pays to do more than just rely on a Social Security COLA. Instead, you can better your own financial picture in retirement by joining the gig economy.
It's not an uncommon thing for retirees to hold down a job. But historically, that often meant being a cashier or doing mundane administrative tasks.
Now, thanks to the gig economy, part-time work in retirement can be fun. It can mean selling baked goods for money, walking dogs, teaching piano, or tutoring in a subject you enjoy. And the amount of money you earn from a modest amount of gig work each month could far surpass whatever Social Security COLA comes down the pike.
In fact, let's say you end up working six hours a month in retirement at an hourly rate of $20. Well, that's $120 in your pocket, compared to the $50 you might get in the form of a Social Security boost.
Plus, working in retirement is a great way to keep busy, get out, and interact with others. These are important things, especially if you're someone without a huge social or family network nearby.
Don't let a stingy COLA upend your year
While we won't know what 2025's Social Security COLA looks like until October, the general consensus is that it won't be as generous as 2024's. Rather than let that wreck your financial plans, embrace the gig economy and boost your income on your own terms.
That way, if next year's COLA disappoints, you won't necessarily be left to scramble. You may even be able to shrug off a bum COLA without batting an eye.
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