The closer October gets, the more Social Security Administration will soon announce the next COLA increase, which will take effect starting January 2025. No matter how worried you are about this number, it is important to remain grounded and objective. The more you learn about it, the better you will be able to deal with and benefit from this change. It doesn’t matter if this is your first time receiving Social Security benefits or hearing about the COLA. This issue will affect you in the future and the impact varies depending on the program.

That’s why it’s important to understand how the entire process works and how much money this change ultimately means. Read on to learn how to update Social Security. Although the final percentage will be announced on October 10th, based on the latest forecast from the Senior Citizens League Cost of Living Adjustment (COLA) for 2025 it could be around 2.5%.

What is called a cost of living adjustment (COLA)?

Have you ever noticed that every year public transport fares go up, gas prices go up and, as you can imagine, everything goes up? Unfortunately, many of us will find that the increases add up to more than our income can support, reducing the amount or even the ability to purchase some of the products we are used to. This is called a decline purchasing power.

This problem is not limited to workers’ wages, but also includes the income enjoyed by pensioners and other vulnerable populations Social Security checks. That means Americans who have no other sources of income (or whose sources are limited) will have to make difficult decisions about what they can afford year after year and, God forbid, month after month if their monthly payouts aren’t adjusted.

This is the origin of the COLA, an index that takes this issue into account and is used to adjust not only the monthly payments of beneficiaries, but also many other amounts related to the Social Security Administration’s programs, such as: B. the maximum taxable income and social security incapacity thresholds, Supplemental Security Income (SSI) Resources and income limits.

How is COLA calculated?

Most of the process is so simple that you can do it yourself. However, calculating the primary source of information is a little more difficult. COLA is derived from another index, the CPI-W, or consumer price index for wage earners and office workers. A consumer price index, as the name suggests, is a numerical representation of how prices for a group of goods or services have changed over time (and provides insight into the inflation the economy has experienced over that period). CPI-W will bundle around 200 goods and services.

However, simply tracking price fluctuations is not enough as it does not reflect the potential Social Security recipients would spend their money. Therefore, the price changes have been adjusted and weighted to align with the spending preferences of families that derive at least 50% of their income from salaried or commercial activity.

This process is carried out by the Bureau of Labor Statistics (BLS) each month, and for COLA, SSA takes data from the third quarter of the year (July, August, and September), averages it, and compares it to the same calculation done the previous year to see how much it changes between years has . In this way, the agency calculates a percentage that can be used as an indicator of the impact of inflation on Social Security checks.

When is COLA used?

After understanding the process, it is important to create an accurate timeline. BSL typically takes at least two weeks to calculate their CPI-W; So the public will know the three required CPI-W values ​​by October 10th. A few days later, SSA will announce its final decision COLA Crowd for next year, which will be implemented on December 31, 2024, so you can receive your increased payment in January.