The Impact of Rising Inflation on retirees Cost-of-living adjustment, also referred to as COLA, is a yearly increase in Social Security benefits for other government programs. Such programs include the Supplemental Nutrition Assistance Program (SNAP). Even though an official COLA adjustment varies from year to year, it became adjusted to 2.5 percent for the year 2025. The whole process of calculation and application is shrouded in mystery. Let’s go into it further.
What Does the Term COLA Expound?
COLA stands for Cost of Living Adjustment, which is the annual inflation increase of Social Security benefits based on the Consumer Price Index for Wage Earners. The Consumer Price Index (CPI) measures price changes for goods and services purchased by urban wage earners and clerical workers. It covers housing, medical care, transportation, and many more. To come up with a COLA calculation, the CPI in the third quarter (July, August, and September) would then be compared with that of the same quarter in the prior year. From that, one can arrive at the percentage for that specific year’s COLA.
So, on that basis, 2.5% will be awarded as an increase through both Social Security benefits and other benefits in 2025. Some problems concerning COLA system
The first reason for which COLA is instituted is offsetting inflation but given these structural problems and the economic realities, the effectiveness of this measure is always suspect. That is what we are dealing with in these most simple essentials:
1. Another REDUCE in COLA
So, as the first six months of the year went by, so also would beneficiaries have to grapple with all prices being pushed up, with increased cost of living adjustment (COLA) of 3.2% during the year 2024 following the payment of either rent, food items, or transport at the same time that the Federal Reserve cuts down on some edges of inflation. It still looms a bit overhanging and threatens that by the time 2025 rolls around, any given COLA will not be able to keep pace with inflation rising.
2. Incorrect Index
In fact, the current COLA is based on a Consumer Price Index (CPI-W) that more closely resembles a very young set of urban professionals living in very different spending designs. But Social Security beneficiaries comprise people of age 65 and older, disabled persons, and people with very low incomes and spend most of their time inside by using these increasing housing and medical costs which are increasing much faster than any other cost components.
Advocates and experts say it is more relevant to base increases on CPI-E (Consumer Price Index for the Elderly), which has a higher weight on housing and health care. Historically, CPI-E has been higher than CPI-W, meaning that benefits would be higher if adopted.
3. Once Again, a Problem for Stable Income
Though actual cost of living adjustment (COLA) increases are retroactive, it takes time for income beneficiaries to come around to the increased amounts. As a result, purchasing power erodes and, in most cases, becomes a point of relying on savings or augmenting a basic cost of living through such benefits as Supplemental Nutrition Assistance Program (SNAP).
For those without sufficient savings reserves or investments, the reliable income structure becomes quite difficult since every year annuities are adjusted but never so that costs are completely covered. Basic living standards have become unbearable.
COLA and Its Related Effects on SNAP
Apart from Social Security, there are also other government programs subject to COLA adjustment, SNAP (Supplemental Nutrition Assistance Program) included. And, although SNAP does much to support needy families, including Social Security recipients, according to research, it is evident that about three-quarters of eligible seniors do not even know that they can get benefits from SNAP.
Increased SNAP benefits in 2025 along with the COLA amount will greatly benefit eligible applicants and families:
| Number of Members in a Family | Monthly SNAP Benefits (2025) |
|---|---|
| 1 Person | $292 |
| 2 People | $536 |
But then again, these benefits could help families who are against gradually growing prices of food and many other necessities.
Conclusion
The inflation adjustment for 2025 is definitely welcome, but there are still improvements to be made toward addressing the increases in inflation and actual spending behavior of beneficiaries for Social Security. The implementation of COLA needs to have a better and broader reach especially for the older populations and people of limited incomes. Such an action will ensure that benefits reach as many eligible recipients and help in improving their living standards as possible.