As inflation continues to ease, the 2025 Social Security cost-of-living adjustment (COLA) is projected to be smaller than in recent years.
This change is causing concern, as many seniors are struggling to keep up with rising costs, particularly for essentials like housing, food, and healthcare.
While the lower inflation rate should be positive news, it is proving insufficient for retirees who have already lost significant purchasing power. In this article, we’ll explore the 2025 COLA estimate, the rising poverty among seniors, and the ongoing challenges with healthcare costs.
What is the 2025 COLA Estimate?
The Social Security COLA for 2025 is currently projected at 2.5%, according to estimates from Mary Johnson, an independent Social Security and Medicare policy analyst. This is a slight reduction from last month’s estimate of 2.6%, and lower than the 3.2% COLA increase that retirees received in 2024.
For the average retiree receiving $1,870 per month in benefits, this 2.5% increase would amount to an additional $46.80 per month. While this sounds like a helpful boost, it’s far from sufficient to offset rising living costs that seniors are facing.
Seniors Still Struggling with High Prices
Although inflation has cooled overall, the costs of essentials such as housing, food, and healthcare remain stubbornly high. Johnson pointed out that the 2025 COLA will be the lowest since 2021, but prices for key essentials like housing and healthcare continue to rise. Unfortunately, Social Security benefits, which are meant to keep up with inflation, have been falling short for years.
According to a study by The Senior Citizens League (TSCL), Social Security benefits have lost 20% of their purchasing power since 2010.
That means retirees now get significantly less value from their benefits than they did a decade ago. For example, $100 worth of groceries in 2010 would now cost a retired household about $120, straining budgets that are already tight.
To restore their purchasing power, Social Security benefits would need to increase by about $4,440 per year—or $370 per month—according to TSCL’s analysis.
Rising Poverty Among Seniors
One of the most alarming trends is the increasing number of seniors falling into poverty. Data from the Census Bureau shows that the percentage of seniors living below the poverty line has been growing steadily since 2020.
In 2023, 14.2% of seniors were in poverty, compared to 9.5% in 2020. This marks the highest poverty rate among seniors since 2016.
The Census Bureau’s Supplemental Poverty Measure (SPM), which accounts for noncash benefits and necessary expenses like taxes and medical costs, paints a sobering picture of the challenges facing older adults.
Rising healthcare and housing costs are major contributors to this trend, as many retirees struggle to make ends meet despite receiving Social Security benefits.
| Year | Percentage of Seniors in Poverty |
|---|---|
| 2020 | 9.5% |
| 2021 | 10.7% |
| 2022 | 14.1% |
| 2023 | 14.2% |
Medicare Premiums Cut Into COLA
One of the most significant financial burdens facing retirees is the rising cost of healthcare, particularly Medicare premiums.
Medicare Part B, which covers medically necessary services like doctor visits and lab tests, has been increasing at a much faster rate than COLA adjustments. Over the past two decades, Medicare Part B premiums have risen by an average of 5.5% annually, while COLA increases averaged just 2.6%.
For 2025, Medicare Part B premiums are expected to increase by 5.9%, bringing the monthly premium to $185, up from $174.70 in 2024.
This means that much of the 2.5% COLA increase will be offset by higher Medicare costs, leaving seniors with little extra money to cover other rising expenses.
Additionally, Part B premiums are automatically deducted from Social Security benefits, further reducing the amount retirees receive each month.
How is the COLA Calculated?
The Social Security COLA is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index tracks inflation by measuring the average price increases in a basket of goods and services.
The Social Security Administration uses the CPI-W data from July through September to determine the COLA for the following year.
However, a major criticism of the CPI-W is that it doesn’t reflect the spending patterns of older adults. For instance, while younger workers tend to spend around 7% of their income on healthcare, seniors typically spend more than 15% on medical expenses.
This discrepancy means that the COLA may not adequately reflect the rising costs that retirees face, particularly in healthcare.
While the 2025 COLA will provide some financial relief for Social Security beneficiaries, it will likely fall short of what many seniors need to maintain their standard of living.
Rising healthcare costs, housing expenses, and inflation in key areas continue to erode the purchasing power of Social Security benefits.
Additionally, with more seniors falling into poverty each year, the challenges facing older adults are becoming more severe. Without significant reforms to Social Security or additional support measures, many retirees will continue to face financial insecurity.
FAQs
What is the estimated 2025 Social Security COLA?
The estimated COLA for 2025 is 2.5%.
How much will the average benefit increase in 2025?
The average retiree will receive about $46.80 more per month.
Why are more seniors falling into poverty?
Rising healthcare, housing costs, and insufficient COLAs contribute to increasing poverty.
How much will Medicare Part B premiums increase in 2025?
Part B premiums are expected to rise to $185, a 5.9% increase.
Does the COLA consider healthcare costs?
No, COLA does not factor in the rising costs of Medicare or healthcare expenses.
