When the Social Security Administration (SSA) announced last October that benefits would only be rising by 2.5% in 2025, a lot of people were disappointed. And that’s understandable since that 2.5% cost-of-living adjustment, or COLA, is the smallest raise to arrive in years.

Now the reality is that a smaller COLA is indicative of cooling inflation. So in reality, seniors on Social Security should be breaking even in that regard. In other words, their benefits aren’t up so much this year, but living costs should be moderating.

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Or at least that’s the way things are supposed to work in theory. In practice, seniors on Social Security risk losing out on buying power in the near term thanks to an economic factor outside their control.

Inflation is already creeping back upward

In January, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) rose 3% on a year-over-year basis. Why is this important?

The CPI-W is the index used to calculate COLAs each fall. Specifically, third-quarter data from that index is compared to data from a year prior. If there’s a rise in the CPI-W from one year to the next, Social Security benefits increase.

However, the problem with Social Security COLAs is that they’re backward-facing. That is, they’re based on previous inflation data. So it’s more than possible for a COLA to be announced in October only for inflation to then pick up in the months that follow.

That’s what’s happening here. Since Social Security’s 2025 COLA was announced, annual inflation has risen beyond the 2.5% mark. So now, seniors who get most or all of their income from Social Security are in a really tough spot.

Look outside of Social Security for income

It’s best not to retire on Social Security alone for a number of reasons. First, those benefits will only replace about 40% of your previous wages if you earn a typical paycheck. And also, Social Security’s COLAs have long failed to adequately keep up with inflation despite being designed to do just that.

That’s why it’s optimal to have savings to fall back on in retirement. But if you’re already retired and missed that boat, all isn’t lost.

For one thing, you could try rethinking some of your expenses and seeing if there’s room to make cuts in your budget. It may, for example, be possible to unload a car and rely on public transportation and rides from others if you really think about it. That could save you the cost of auto insurance, maintenance, and fuel — not to mention a potential car payment if your vehicle isn’t paid off already.

You can also work on a part-time basis to boost your income. And the good news is that it’s permissible to work while collecting Social Security.

However, if you haven’t yet reached full retirement age (FRA), you’ll be subject to an earnings test. And exceeding the limit that applies to you under the earnings test could mean having some of your Social Security benefits withheld. So you will need to be mindful of how much you’re earning at a part-time job.

Also, if the idea of a traditional part-time job isn’t appealing, you can turn to the gig economy for extra income. That could give you the chance to make money doing something enjoyable.

It’s too soon to predict how inflation will trend for the rest of the year. But from a Social Security COLA standpoint, things are off to a rocky start for seniors. So it’s best to get ahead of that situation in case inflation continues to wreak havoc.

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