By A.J. Kaufman, Managing Editor
It was announced in late October that Social Security recipients will see a 2.8% cost-of-living adjustment (COLA) in their monthly checks starting in early January.
The Bureau of Labor Statistics recently reported that prices rose 3% year-over-year, which is a nominal acceleration over the prior month.
This information affects not just seniors, but all adults, particularly a standard 40-year-old couple trying to raise a family, where it’s possible they’ve not received a “COLA” from an employer in years.
But let’s focus on social security recipients for the purposes of this analysis. The aforementioned COLA increase means a person who collects the monthly average of nearly $2,000 will see an additional $56 per month come January. (In 2025, more than 72 million people saw a 2.5% COLA hike for their Social Security and Supplemental Security Income benefits.)
This increase is directly in line with overall inflation for the year yet trails categories that are particularly germane to older adults.
The recent consumer price index (CPI) reading showed that medical care climbed 4% from a year earlier, while electricity and piped gas jumped 5 and nearly 12%, respectively. This is to say nothing about food prices that have soared both at grocery stores and restaurants following the COVID-19 pandemic and assorted lockdowns.
AARP, a partisan but respected interest group for older adults, suggested that the benefits bump falls short of filling seniors’ needs. According to their own survey from September, more than three in four older adults thought that a cost-of-living increase of around 3% would not be “enough to keep up with rising prices.” That view held across political affiliation, with 75% of Republicans and nearly 80% of Democrats concurring that the COLA would be insufficient.
More than 51 million retirees receive Social Security benefits, while the agency also disburses more than 8 million survivor and dependent benefits. Social Security is the only source of income for over 25% of adult recipients.
The program’s crisis in the years ahead stems from, as America’s population ages, shifting the balance on their earnings and age at retirement.
The program faces an infamous crisis in the years ahead: between workers who contribute to Social Security and those who benefit from it, the trust fund fueling the program is running out. The trustees’ latest estimate predicted that it will run dry in 2033.
Three-quarters of American workers fear that promised Social Security benefits won’t be there when they retire, a new survey found. Plans to salvage the program, including sensible ones from former Speaker of the House Paul Ryan, have been shot down by Republican and Democrat administrations alike.
Eight years from now, the program could only pay beneficiaries using new money coming in from payroll taxes. Without a change to the law, that would mean a 23% cut in benefits.
Reactions to the announcement are mixed, as expected.
Martin O’Malley, a Democrat and former governor who led the Social Security Administration during the Biden administration, slammed the increase as insufficient, criticizing the Trump administration and claiming the COLA bump won’t cover the rising costs seniors and people with disabilities face and expressing a fear of further inflation.
But the Cato Institute, a libertarian think tank, believes 2.8% is too high and recommended the adjustment based on a different measure of inflation, the chained CPI. That takes into account the purchasing adjustment patterns that consumers make when prices of goods change at different rates — like buying more chicken if beef is too expensive — rather than simply calculating rising prices.
“Using the old, outdated index actually drives up Social Security costs more than is necessary to compensate beneficiaries for increases in the cost of living,” Romina Boccia, Cato’s director of budget and entitlement policy, said.
The nonpartisan Committee for a Responsible Federal Budget suggested in a report last month that the program should save money by capping annual COLA increases, so that beneficiaries who earned the highest in their careers, and thus get the biggest monthly checks, wouldn’t receive the full COLA.
When this proposal was modeled, it closed one-tenth of Social Security’s solvency gap and saved $115 billion over a decade. That might be a reasonable, albeit temporary solution. It’s better than anything else recently proposed and could potentially assuage political parties and interest groups.
