Here’s the latest Social Security COLA estimate for 2025 — and why there’s good news and bad news for retirees

Arguably, no government report matters to retirees as much as the US Bureau of Labor Statistics’ (BLS) Monthly Consumer Price Index Summary. This report provides inflation data for the previous month.

Why is it important for retirees? One of the numbers in the report is key to calculating your annual cost of living adjustment (COLA).

On Wednesday morning, the BLS released its inflation report for July. It didn’t take long for the first updated projection of what next year’s COLA might be to come out. Here’s the latest Social Security COLA estimate for 2025 — and why there’s both good news and bad news for retirees.

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The latest Social Security COLA estimate for 2025

After the BLS released its July report, headlines trumpeted that the Consumer Price Index (CPI) fell below 3 percent for the first time in nearly three and a half years. July’s CPI of 2.9% was also lower than the consensus estimate of 3%.

However, the CPI (which is technically the Consumer Price Index for All Urban Consumers, or CPI-U) does not count toward increasing retirees’ Social Security benefits. Instead, the Social Security Administration (SSA) uses a lesser-known measure called the Consumer Price Index for Urban Wage and Service Workers (CPI-W).

The CPI-U and CPI-W typically move in lockstep. They did so in July, with both inflation readings rising 0.1% from the previous month and 2.9% year-on-year.

Should retirees expect a 2.9% Social Security COLA next year? Not according to independent Social Security and Medicare analyst Mary Johnson. Her model, which incorporates monthly CPI-W figures, projects Social Security benefit growth in 2025 to be 2.6 percent. (Johnson estimated a 2.7 percent increase last month.)

Good news and bad news for retirees

Some retirees may see a 2.6% COLA as bad news. Social Security benefits increased 3.2% this year and will increase 8.7% in 2023. For anyone who views the annual COLA as a raise, receiving less will be a change for the worse.

However, in a real sense, a lower COLA in 2025 is good news for retirees. Why? It means that inflation is moderating. Social Security benefits will expand further with lower inflation.

There is good news for pensioners in the July inflation report details as well. Dining out costs rose 0.2% month-on-month, a smaller sequential increase than in the past four months. According to Statista, older Americans tend to eat out more than younger Americans.

The health care index fell 0.2 percent in July after rising 0.2 percent in June. Hospital costs fell by 1.1% last month. These trends are also positive for retirees, as healthcare is typically a bigger expense for them.

However, we can find at least one unavoidable negative associated with a 2.6% Social Security COLA: Retirees won’t receive the benefit increase until January 2025, but they will incur higher costs this year.

Just an estimate

It’s important to remember that we’re only talking about an estimate of what the 2025 Social Security COLA could be. The actual number will not be announced until mid-October.

SSA uses the CPI-W figures from the third quarter of 2023 and 2024 to calculate the annual COLA. The final monthly number for Q3 of this year will be released on October 10, 2024. The official 2025 Social Security COLA should be available shortly thereafter.