The warning sirens have been screaming that the Social Security trust fund will go bust even before the Baby Boomers are done milking it dry. Every year there is a Cost of Living Adjustment (COLA) that is added on to Social Security for the year ahead. It is supposed to keep up with inflation. It is supposed to. The Social Security Administration’s 2025 COLA will be 2.5%.

Tactical Bulls wants to analyze what these gains actually translate to for each of us. After all, the goal is for every able person to have best planned for retirement with the hand they were dealt. Having a nest egg is crucial unless you think $1,900 a month to cover all your expenses is ample. To prove the point, this Tactical Bull mantra better stand out — If you just want the government to take care of you, you might not like how they take care of you.

After all the inflation that has been seen in the last three to four years, a 2.5% COLA raise may feel rather paltry to some people. After all, this COLA benefit adjustment is the lowest gain in 4 years. It is down from the 3.2% COLA that was announced for 2024, and a tad under the 2.6% average for the last decade (see below).

The good news here is that it means inflation has continued to cool down. September marked the fourth consecutive month with inflation under 3.0%. This is why the Federal Reserve finally committed to lowering short-term interest rates. Oh, and more rate cuts are still expected in 2024. And the CME FedWatch Tool is still projecting another one-percent worth of rate cuts (or so) out by the end of 2025.

There are currently 72.55 million Americans taking Social Security payments (SSA Aug-2024 data, changes monthly). That is broken down as follows:

• 55.6 million in the “65 and older”
• 11.38 million in the “Disabled, Under 65”
• and 5.56 million in the “other” category (early retirees, young survivors, surviving spouses, dependents).

The SSA release indicated that some other adjustments that take effect each year are also based on the increase in average wages. As a result, the maximum amount of earnings subject to the Social Security tax (taxable maximum for 2025) will rise to $176,100 from $168,600. The SSA release also indicated that nearly 68 million Social Security beneficiaries (rather than the full 72.55 million SSI figure) will see a 2.5 percent cost-of-living adjustment (COLA) beginning in January 2025.

The average Social Security benefit is roughly $1,900 per month. So, starting in 2025, that SSA pay raise will equate to about $47 more each month. If you just round this figure up to $50 per month for simplicity, since there is no way to easily break out the numbers by group without this turning into a dissertation, Social Security will be paying out an extra $3.6 billion per month to Social Security takers in 2025. Here is a chart showing the last 10 years of COLA benefit changes (for the following year):

• 2024   2.5%
• 2023   3.2%
• 2022   8.7%
• 2021   5.9%
• 2020   1.3%
• 2019   1.6%
• 2018   2.8%
• 2017   2.0%
• 2016   0.3%
• 2015   0.0%

As a reminder, the eligibility for traditional Social Security benefits is that you were employed and paid Social Security taxes for 10 years or more. And if you are not a Boomer already well into your retirement, you no longer get to collect full benefits starting at 65. Some people can choose to begin taking benefits as early as age 62 — but keep in mind that this comes with restrictions. The monthly Social Security payments are based on your lifetime earnings.

USNews did show what the maximum monthly Social Security payments could be for 2024. The stipulation for collecting the highest payout implies a retirement age of 70, having worked at least 35 years, and earning at least the maximum income amount for the year. Their average Social Security benefit for 2024 was shown as $1,907 per month. The highest monthly benefit would be $4,873 for those retiring at 70 and $3,911 for those retiring at age 67.

AARP has already issued its first take on the 2025 COLA showing how this compares to other categories. Their figures may be a few dollars different than have been shown in here, but that may be from rounding on their part or here.

We also have to keep in mind that, just like the compounding of inflation, the COLA changes each year are compounding rather than just based on a past fixed amount. That means that since the 2020 announced hike of just 1.3% (for 2021) that the jump since then has been almost 21.8% in total pay adjustments. If the annualized CPI rate for 2024 manages to match the 2.5% COLA adjustment, then the inflation rate covering the same period would be a cumulative 20.8%.

Now you just have to decide whether or not you agree with the “official inflation rate” measured by metropolitan CPI versus your costs was really higher or lower.