The Social Security Administration (SSA) recently announced the upcoming cost-of-living adjustment (COLA) for 2025, and many retirees feel discouraged by it.

Next year’s adjustment will be 2.5%, the lowest since 2021. Once the 2025 COLA takes effect, the average retiree will collect roughly $50 more per month.

As costs still remain stubbornly high, shrinking COLAs aren’t going far. In fact, a whopping 81% of retirees say that these adjuments provide little to no help with everyday expenses, according to a 2024 survey from The Motley Fool.

While there is some good news about next year’s COLA, there’s also some not-so-good news. Here’s what you need to know.

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The COLA continues to struggle with inflation

In theory, smaller raises should be a good thing for retirees. The COLA is directly tied to changes in inflation, so smaller adjustments suggest that inflation is slowing down. Lower costs will likely help retirees more than larger COLAs, so this should be good news.

However, Social Security has consistently struggled to keep up with rising costs. In fact, inflation has outpaced the COLA in four of the last five years. The only year in which the COLA came out ahead of the inflation rate was 2023, which saw a record-breaking 8.7% COLA — the highest adjustment in roughly 40 years.

Part of this struggle may be due to how the COLA is calculated. The SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures changes in costs that primarily affect workers.

Some experts have pushed for the SSA to start using a different index to calculate the COLA — specifically, the CPI-E, which is designed to track costs impacting adults age 62 and older. Using the CPI-E rather than the CPI-W could result in larger COLAs that are more tailored to retirees’ financial needs.

Social Security’s cash issues could cause more problems

There may be many reasons behind the SSA’s reluctance to pay out higher COLAs, even as the adjustments struggle to do the job they were designed for. The system is incredibly complicated, and even small changes often require pushing through mountains of bureaucratic red tape.

That said, Social Security’s consistent cash flow issues could make it even less likely that we’ll see more effective COLAs going forward.

For years now, the Social Security program has been running at a deficit. The income from payroll taxes and other sources hasn’t been enough to fully fund benefit payments, so the SSA has been pulling money from its trust funds to bridge the gap.

According to the SSA Board of Trustees’ most recent estimates, the trust funds will likely be depleted by 2035. When that happens, the current income sources will only be enough to cover around 83% of scheduled benefits, meaning retirees could see their benefits cut by 17% in the next decade or so.

The more the SSA pays out in benefits, the faster it will burn through the trust funds — and the sooner cuts will become a reality, assuming lawmakers don’t find a solution quickly. While higher COLAs would have an immediate effect on retirees’ bank accounts, they could also create bigger problems down the road.

What this means for your retirement

There may be nothing you can do about the COLA or the future of Social Security. But you can take steps to either increase your savings or at least keep realistic expectations about how far your benefits will go.

If you can either continue working or find an additional source of income, that could help stretch your savings. This strategy may not be feasible for everyone, but if Social Security isn’t going to be as reliable going forward, it pays to do whatever you can to reduce your dependence on your benefits.

Reducing your spending, if you can swing it, can also help your savings last longer. If your savings are stashed in a retirement account like a 401(k) or IRA, that money will continue to grow for as long as it sits in your account. Even if you can’t increase your savings, keeping more of your nest egg untouched can help your money build over time.

Millions of retirees are already struggling to make ends meet, and the disappointing COLA may not help much. But by staying updated on Social Security’s future, you can take as many steps as possible to protect your savings.

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