On October 10, 2024, the Social Security Administration (SSA) announced the official 2025 cost-of-living adjustment (COLA) for Social Security benefits, following the release of September’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
This announcement is highly anticipated by the 68 million Americans who rely on Social Security, with about one-third of retirees depending on these benefits as their primary source of income.
With inflation and rising living costs continuing to challenge retirees’ financial stability, the SSA’s annual COLA plays a critical role in helping beneficiaries keep up with expenses.
COLA
Each year, the SSA adjusts Social Security benefits to reflect inflation, using the CPI-W as its benchmark. The Bureau of Labor Statistics (BLS) calculates COLA by comparing the average CPI-W of the third quarter of the current year to the same period in the previous year. The percentage increase is rounded to the nearest tenth and becomes effective in early 2025.
For 2025, experts are predicting a COLA of approximately 2.5%, a decrease from the 3.2% increase in 2024. While lower inflation may lead to smaller adjustments, retirees still face rising costs in areas such as healthcare, housing, and essentials like food.
CPI-E
A growing concern among retirees is that the current COLA calculation, based on the CPI-W, may not adequately reflect the expenses that disproportionately impact older Americans. Seventy-five percent of respondents in a survey by The Senior Citizens League (TSCL) support a switch to the Consumer Price Index for the Elderly (CPI-E). The CPI-E better accounts for the costs faced by retirees, such as healthcare and housing. Switching to this model could lead to larger benefit increases, helping seniors better manage their financial needs.
Retirees
Although a 2.5% COLA reflects lower inflation, many retirees worry that this smaller increase won’t be enough to cover the rising costs of living. In a 2024 TSCL survey, 78% of respondents reported higher monthly expenses for essentials like food and housing. With Social Security expected to run out of funds in the coming decade, and longer life expectancies making retirement savings harder to stretch, retirees are increasingly concerned about outliving their savings.
The economic landscape has left many retirees considering alternative ways to maintain their standard of living. One strategy involves relocating to more affordable areas that offer a lower cost of living, coupled with tax advantages for retirees.
Impact
For retirees looking to maximize their Social Security benefits in light of the smaller COLA, certain states offer a combination of lower costs, tax benefits, and quality of life. Here are the top 11 states that can help retirees stretch their dollars:
| State | Key Benefits |
|---|---|
| South Carolina | No taxes on Social Security benefits, $10,000 deduction on retirement income, affordable home prices, and low overall cost of living. |
| Nevada | No state income tax, low property taxes, and exemptions on food and prescription drugs make Nevada tax-friendly, though cost of living is slightly above average. |
| Texas | No state income tax, exemptions on food and medicine, and a relatively low cost of living offset high property taxes. |
| Michigan | Low cost of living and affordable housing, with favorable tax treatment for retirement income. Healthcare services vary by region but are generally good. |
| Mississippi | One of the most tax-friendly states, Mississippi offers a low cost of living and no tax on retirement income. |
| Georgia | Affordable housing and a cost of living 9% below the national average, with mild weather and low property taxes. |
| Delaware | No sales tax, affordable housing, and moderate climate, making it a popular destination for retirees looking to balance cost and quality of life. |
| Tennessee | No state income tax, low cost of living, affordable home prices, and scenic landscapes offer retirees a relaxed lifestyle. |
| Florida | A retirement favorite, with no state income tax, countless retirement communities, and strong tax benefits, though the cost of living is slightly above average. |
| South Dakota | No state income tax, affordable housing, and low cost of living combined with outdoor activities make it ideal for retirees. |
| Wyoming | With no state income tax, low cost of living, and stunning natural scenery, Wyoming tops the list for retirees seeking peace, affordability, and financial stability. |
With a 2.5% COLA expected in 2025, many retirees may find themselves needing to reassess their financial strategies to keep up with rising costs. While the SSA’s adjustments aim to help offset inflation, factors like stagnant wages, high healthcare costs, and concerns over long-term Social Security funding are driving retirees to consider relocating to states with better financial benefits.
Retirees who prioritize financial independence may find more stability in states that offer lower taxes, affordable living costs, and a welcoming environment for seniors. As the economic landscape continues to shift, it’s essential for retirees to stay informed and consider all options available to secure a more comfortable retirement.
FAQs
How is the Social Security COLA determined?
The COLA is based on the percentage increase in the CPI-W from the third quarter of one year to the next.
What is the predicted 2025 COLA percentage?
Experts predict a 2.5% COLA for 2025.
Why do retirees want to switch to the CPI-E for COLA?
The CPI-E better reflects the spending habits of retirees, especially for healthcare and housing.
What concerns do retirees have about the 2025 COLA?
Many worry that the smaller COLA won’t cover rising living costs.
Which states offer the best financial benefits for retirees?
Top states include Wyoming, South Dakota, Florida, Tennessee, and South Carolina.
