Pundits spend months predicting how much the Social Security cost-of-living-adjustment (COLA) will be for the following year. Me? I just wait until October when the Social Security Administration actually makes the announcement. And, they’ve just done that.
Automatic Social Security cost-off living adjustments have been in effect since January 1, 1975. They are calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Data from the third quarter is added and averaged and then compared with the third quarter average from the previous year. That determines the size of the COLA.
For 2025, the 68 million Americans who receive a Social Security check will get an increase of 2.5% beginning in January. That means the average monthly retiree benefit will go up about $50.
The 2.5% COLA for 2025 is the lowest in 4 years. Previous COLAs were 3.2% for 2024, 8.7% in 2023 and 5.9% in 2022, levels that had not been seen in 40 years because of high inflation.
On the surface, you may think lower inflation is a positive for Social Security recipients. But inflation is still going up, just not as quickly. Add the last three COLAs together with the one for next year (5.9% + 8.7% + 3.2% + 2.5%) and it means Social Security beneficiaries are dealing with inflation and prices that are more than 20% higher than four years ago.
The COLAs are supposed to help seniors keep pace with inflation. But some argue that the way Social Security COLAs are calculated is a problem because it’s based on a consumer price index for workers, not for older folks whose spending is different than it is for people still in the workforce.
According to AARP, annual Social Security COLAs typically aren’t enough to offset a senior’s increases in the cost of housing, food, transportation, and their much higher spending on healthcare and prescription drugs. The Senior Citizens League (TSCL) says the percentage increase in annual Medicare premiums is always higher than the Social Security COLA.
Research by TSCL shows that Social Security benefits have lost more than 30% of their purchasing power since 2000 primarily because COLAs are too low and health care costs are out of control. The Senior Citizens League claims that the CPI-W underestimates inflation experienced by Social Security recipients because it under weights healthcare and housing costs for seniors. TSCL wants Congress to adopt legislation that would base the COLA on the Consumer Price Index for the Elderly (CPI-E).
Some other adjustments that take effect every January are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase from $168,600 to $176,100. For a detailed list of 2025 benefits by category compared to 2023 benefits, see SSA’s COLA fact sheet.
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