The Social Security Cost-of-Living Adjustment (COLA) for 2025 is shaping up to be smaller than expected. This news comes as a disappointment to many retirees and beneficiaries who rely on Social Security as a critical source of income. Although these benefits are adjusted each year to account for inflation, the latest projections suggest that the 2025 increase won’t be as large as in previous years. In this article, we’ll break down why the COLA increase is lower than anticipated, how it’s calculated, and why this matters for beneficiaries.
COLA
The Cost-of-Living Adjustment (COLA) is an annual increase in Social Security benefits designed to help recipients keep pace with inflation. Since prices for essential goods and services like groceries, housing, and healthcare tend to rise over time, the COLA ensures that benefits increase to maintain purchasing power. This adjustment is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
From July through September, the Social Security Administration (SSA) compares the average CPI-W data from these months with the same period from the previous year. If there’s a noticeable increase in the CPI-W, the SSA applies a COLA to boost benefits. This adjustment helps retirees maintain financial stability in the face of rising living costs.
Before 1975, Congress had to manually approve Social Security benefit increases, leading to unpredictable and irregular adjustments. Now, COLA provides a consistent, automatic process that reflects the economy’s state. However, the size of the increase depends entirely on inflation rates.
What to Expect
According to the latest projections, the COLA increase for 2025 is expected to be 2.6%, lower than the last few years. While a 2.6% increase is not insignificant, it’s a sharp decline from the recent trends of larger increases, such as the 5.9% COLA in 2022 and the 8.7% COLA in 2023—the largest adjustment in over four decades.
In 2024, the COLA increase was 3.2%, reflecting a drop in inflation rates that began in 2023. With inflation stabilizing, the 2025 adjustment will also be more modest. Mary Johnson, a Social Security and Medicare policy analyst, lowered her COLA projection from 3.2% to 2.6% based on the latest inflation data, a forecast that aligns with The Senior Citizens League (TSCL) estimates.
If the COLA for 2025 holds at 2.6%, the average Social Security benefit, which stood at $1,782.74 in July 2024, will increase by about $46.35 per month. While this is a helpful boost for nearly 68 million beneficiaries, it may not be enough to fully cover the rising costs of everyday essentials like groceries, utilities, and healthcare.
| Year | COLA Percentage | Average Monthly Benefit | Average Increase |
|---|---|---|---|
| 2022 | 5.9% | $1,657 | $97.80 |
| 2023 | 8.7% | $1,827 | $142.50 |
| 2024 | 3.2% | $1,782.74 | $57.05 |
| 2025 | 2.6% (Projected) | $1,782.74 | $46.35 |
Lower COLA
The lower COLA for 2025 reflects the easing of inflation after several years of rapid price increases. From 2020 to 2023, inflation surged due to supply chain disruptions, increased demand for goods, and global economic challenges. This spike in inflation prompted higher-than-usual COLA increases in 2022 and 2023.
However, as inflation has slowed, the SSA’s COLA calculation has adjusted to reflect this new economic environment. While beneficiaries saw significant boosts in their checks over the past few years, the smaller COLA for 2025 signals that the rapid inflationary period is ending.
Beneficiaries
Social Security provides vital financial support for millions of Americans. According to Gallup, 88% of retirees rely on their Social Security checks as a “major” or “minor” source of income, with many having no other substantial income source. For retirees on a fixed income, any fluctuation in COLA can have a direct impact on their ability to cover basic living expenses.
A lower COLA can pose financial challenges for beneficiaries, especially in areas where prices continue to rise faster than inflation. Housing costs, medical expenses, and food prices are often more volatile than the overall inflation rate. If the COLA increase doesn’t keep up with the costs of these essential categories, beneficiaries may find it harder to make ends meet.
Past 20 Years of COLA
Over the past 20 years, the average COLA increase has been 2.6%, reflecting periods of both inflation and deflation. Between 2010 and 2016, there were three years with no COLA increase due to deflation.
The lowest COLA during this period was just 0.3% in 2017. However, the rapid inflation in 2022 and 2023 brought the largest increases in decades, providing a much-needed boost to Social Security recipients.
What’s remarkable about the projected 2025 COLA is that, while lower, it would mark the first time since 1997 that Social Security benefits have increased for four consecutive years. In total, benefits will have grown by more than 22% by the end of 2025 compared to their levels in 2021.
While the 2025 COLA increase is lower than many had hoped, it still represents a crucial adjustment to ensure Social Security benefits maintain their value. Beneficiaries should be prepared for a smaller-than-expected boost in their checks next year, which may not fully offset the rising costs of essential goods and services. Despite this, the four-year streak of COLA increases is a positive trend for retirees, helping them to better manage the challenges posed by inflation.
FAQs
How is the Social Security COLA calculated?
The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of each year.
What is the projected COLA for 2025?
The COLA for 2025 is projected to be 2.6%, according to recent estimates.
How much will the average Social Security check increase in 2025?
The average check is expected to increase by approximately $46.35 per month in 2025.
Why is the 2025 COLA lower than in previous years?
The 2025 COLA is lower due to the stabilization of inflation after the rapid increases seen in 2022 and 2023.
How often do Social Security benefits increase?
Social Security benefits are adjusted annually based on the cost-of-living adjustment (COLA).
