2025 Social Security Increase – Smallest Raise in Four Years

In just a few weeks, retirees will know the official cost-of-living adjustment (COLA) for their Social Security benefits in 2025. With inflation slowing down, retirees are likely to see a smaller increase than in recent years. Let’s take a closer look at how the COLA works and what to expect in 2025.

COLA Is Calculated

The COLA is an annual adjustment to Social Security benefits designed to keep up with inflation. The goal is to ensure that benefits maintain their purchasing power as the cost of living rises. The Social Security Administration (SSA) calculates the COLA using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks the prices of goods and services most relevant to everyday living.

The SSA specifically looks at the CPI-W for the third quarter of the year—July, August, and September. The average of these months is compared to the same period in the previous year to determine the percentage increase. The difference is then applied as the COLA for the upcoming year.

For example, the 2024 COLA of 3.2% was calculated using the average CPI-W data from the third quarter of 2023 compared to 2022.

COLA Estimate

Inflation has cooled significantly since its peak in 2022, leading to expectations of a smaller COLA for 2025. Here’s how the CPI-W data for 2025 is shaping up:

Year	July	August	September	Average
2023	299.899	301.551	302.257	301.236
2024	308.501	308.640	TBD	TBD

With the September 2024 CPI-W data still pending, the COLA for 2025 is estimated to be around 2.6%. While this is lower than the 3.2% increase in 2024, it reflects the current cooling of inflation.

COLA Is Smaller

Retirees have seen significant increases in their Social Security benefits in recent years due to surging inflation. In 2022, the COLA was 5.9%, followed by an 8.7% jump in 2023— the largest increase in more than four decades. These adjustments were necessary to keep up with skyrocketing prices for goods and services during the pandemic and subsequent economic recovery.

However, inflation has been trending downwards over the past year, thanks in part to the Federal Reserve’s aggressive interest rate hikes. Inflation peaked at 9.1% in June 2022, but as of last month, it has dropped to 2.5%. As inflation cools, so does the COLA, resulting in a more modest increase for 2025.

Impact

While the estimated 2.6% COLA might seem disappointing after the large increases of the past few years, it’s important to remember that lower inflation is good news overall. A smaller COLA reflects slower price increases, meaning retirees’ cost of living is rising at a more manageable rate.

However, some critics argue that the current method of calculating COLA does not fully reflect retirees’ expenses. Organizations like the Senior Citizens League have pointed out that the CPI-W doesn’t account for the higher healthcare costs that many retirees face, which can result in a gradual loss of purchasing power over time.

Looking Ahead

Retirees should expect the smallest Social Security benefit increase in four years. While it may not match the large raises seen recently, a 2.6% COLA will still help benefits keep pace with inflation, albeit at a slower rate. More importantly, the smaller adjustment comes with the positive news that inflation is under control, easing the financial burden for many retirees.

With the September CPI-W data yet to be released, the final COLA number could fluctuate slightly, but it’s expected to hover around the mid-2% range.

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