The Social Security cost-of-living adjustment (COLA) for 2025 has come in lower than expected, shrinking to just 2.5% from 2024’s 3.2% increase. This adjustment marks the smallest rise since 2021, and retirees are already feeling the pinch. With inflation still taking a toll, this increase doesn’t quite cut it for the millions relying on Social Security as their main source of income.

Starting in January 2025, nearly 68 million Social Security beneficiaries will see their payments bump up by a mere $50 per month, from an average of $1,907 in 2024 to $1,957. Sure, it’s an increase, but what will that extra $50 buy? Well, at today’s gas prices, it’s enough for about 14 gallons of gasoline or a couple of days’ worth of groceries—hardly the windfall retirees were hoping for. Meanwhile, about 7.5 million Supplemental Security Income (SSI) recipients, who include those with disabilities and older adults with limited resources, will start receiving their increased benefits on December 31.

The problem here isn’t just the size of the COLA increase; it’s the fact that it doesn’t fully account for the realities retirees face. COLA is supposed to help beneficiaries keep up with inflation, but it’s been falling short. According to a survey by AARP 83% of older Americans feel a COLA of less than 3% simply isn’t enough to cover rising expenses. It’s no wonder retirees are feeling the squeeze, especially when everyday essentials like healthcare and housing costs keep rising faster than the COLA adjustments.

So, how exactly is COLA calculated? The Social Security Administration bases it on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It’s a mouthful, but essentially, it tracks the inflation experienced by working adults under the age of 62. The problem is that retirees don’t spend their money the same way younger, working adults do. While younger workers spend around 7% of their income on healthcare, older adults tend to spend closer to 15%, and healthcare costs are only going up. In fact, medical services alone saw a 3.6% jump in the past year, with hospital services rising even more at 4.5%.

These rising costs have hit retirees hard. Many rely on Social Security as their main source of income, and even with the 2.5% COLA increase, it’s getting tougher for them to make ends meet. As Jo Ann Jenkins, the CEO of AARP, pointed out, inflation has taken a major financial toll on older Americans, especially those who rely heavily on Social Security to pay their bills.

Unfortunately, seniors are feeling the impact in more ways than one. Since 2020, the number of seniors living in poverty has been on the rise, according to the U.S. Census Bureau. In 2023, 14.2% of Americans aged 65 and older were living in poverty, up from 14.1% the previous year and 10.7% in 2021. It’s a troubling trend, especially considering the fact that these are the same individuals who have worked their entire lives and now find themselves struggling to cover basic expenses.

But it’s not all doom and gloom. There are steps retirees can take to shore up their financial situation. Contributing to a 401(k) plan, opening a Roth or traditional IRA, and taking advantage of catch-up provisions can all help. However, these individual actions aren’t enough to address the bigger issue at hand—Social Security itself needs reform. Without changes, there’s concern that Social Security won’t be able to provide full benefits in the future.

Retirement experts like Mike Lynch from Hartford Funds are sounding the alarm, urging Congress to take action before it’s too late. The Social Security Administration has made it clear: without reforms, the program may not be able to sustain full benefits for future retirees. This is a critical issue that can’t be ignored, especially as more and more Americans rely on Social Security to cover the basics.

There’s some hope on the horizon, though. One of the more popular ideas floating around in political circles is to stop taxing Social Security benefits. Former President Donald Trump has been vocal about his support for this proposal, which has gained widespread approval—over 80% of voters are in favor, according to recent polls. Right now, around 40% of Social Security beneficiaries are taxed on their benefits, and getting rid of those taxes would be a welcome relief for many. While it’s uncertain whether this proposal will come to fruition, it’s encouraging to see that Social Security reform is at least being discussed.

In the end, Social Security is a lifeline for millions of retirees, but it’s clear that the system needs a serious update to keep pace with the rising cost of living. While the 2025 COLA increase might offer a little extra cash, it’s not enough to cover the financial realities many older Americans face.