The 2025 Social Security Cost-of-Living Adjustment (COLA) forecast suggests a small increase, causing potential financial stresses for retirees due to a rise in living costs. The lower-than-desired COLA brings new complexities to retirement planning and emphasizes the need to diversify income sources.
Interestingly, after a post-pandemic 8.7% COLA in 2023 thanks to high inflation, the highest seen within forty years, we’re expected to see a dip. Global supply chain disruptions and spiraling energy prices largely fuel this inflation. These suggest an impending climb in living costs, which could require significant adjustment to future pensions and Social Security.
Despite the 2023 COLA surge, financial difficulties persist among retirees. The Retirement Confidence Survey (RCS) reveals many struggling with healthcare and basic living expenses. The survey also highlights that many families live from paycheck-to-paycheck during retirement, an issue often overlooked during market upswings.
Financial challenges of 2025’s projected Social Security COLA
The survey underscores the gap between the financial preparations made before retirement and the actual retirement costs.
Craig Copeland, EBRI’s Director of Wealth Benefits, has also raised concerns about retirees’ financial situations. Referencing the confidence drop in 2023, he compared it to the 2008 global financial crisis.
The RCS survey found that due to the current year’s modest 3.2% COLA increase, about 58% of retirees may have to cut expenses drastically. The Senior Citizens League (TSCL) also noted that 71% of retirees felt their household expenses had increased more than their benefit hike. Shockingly, 53% reported depleting their emergency savings, and 43% relied heavily on their Social Security benefits for more than half of their income.
The COLA for Social Security in 2025 may see a decrease, according to the TSCL. The difference in expenses accounted for by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and retirees’ main expenditures, such as housing and healthcare, causes this. If it continues, Social Security benefits could see just a 2.6% COLA in 2025, which is already surpassed by current consumer price increases.
