Social Security’s 2025 cost-of-living adjustment (COLA) slashed — Here’s how much the average check is expected to rise next year

For most retirees, Social Security is more than a check. It represents a necessary source of income that most retired beneficiaries could not live without.

For the past 23 years, the Gallup National Poll has surveyed seniors to determine how dependent they are on their Social Security benefits. At no point during this more than two-decade period of annual surveys has the percentage of retirees who need Social Security income to make ends meet dropped below 80 percent. In 2024, 88 percent of retirees noted that their Social Security benefit is either a “major” or “minor” source of income.

Given the key role America’s top retirement program plays in establishing a financial foundation for America’s aging workforce, it should come as no surprise that Social Security’s cost-of-living adjustment (COLA) reveals, which is scheduled for October 10 at 8:30. am ET, it’s the most anticipated announcement of the year.

As we approached this disclosure, the 2025 COLA forecast narrowed significantly, offering beneficiaries both promise and disappointment.

Image source: Getty Images.

What is the purpose of the Social Security COLA?

COLA, often referred to as Social Security, is the mechanism the Social Security Administration (SSA) uses to adjust benefits from year to year to account for changes in the price of goods and services.

For example, if a broad basket of goods and services that are regularly purchased by older people increases cumulatively by 2%, 3%, or 5%, Social Security benefits should ideally increase by a proportionate amount to ensure that purchasing power is not lost. . The annual cost-of-living adjustment aims to keep program beneficiaries on par with the inflation (ie, price increases) they face.

From the first benefit check mailed to retired workers in January 1940 until 1974, benefit adjustments were completely arbitrary and passed through special sessions of Congress. Following the absence of COLAs throughout the 1940s, 11 fairly large adjustments were administered between 1950 and 1974.

Beginning in 1975, the Consumer Price Index for Urban Wage and Service Workers (CPI-W) was charged with tracking inflation for Social Security and effectively became the inflationary link responsible for determining the annual COLA. The CPI-W has more than half a dozen major spending categories and a broad list of subcategories, all with their own percentage weights. It is these weights that allow the CPI-W to be expressed as a single, concise figure each month.

Most importantly, only CPI-W values ​​for the last 12 months from July to September are included in the COLA calculation. If the average CPI-W for the third quarter (July to September) in the current year is higher than the average CPI-W in the comparable period last year, inflation has occurred and benefits will increase.

How much is expected to increase is determined by the year-over-year percentage increase in the average third-quarter CPI-W readings, rounded to the nearest tenth of a percent.

The largest increase in the US inflation rate in four decades has resulted in three consecutive above-average COLAs. US Inflation Rate Data by YCharts.

Social Security’s 2025 cost-of-living adjustment has narrowed substantially

Over the past 20 years, the average COLA has been a pretty mediocre 2.6%. This period includes three years in which deflation (falling prices) occurred and no COLA was passed (2010, 2011 and 2016), as well as the lowest positive COLA on record (0.3% in 2017).

However, the past three years have somewhat broken this anemic COLA trend. The fastest increase in the rate of prevailing inflation in four decades resulted in a 5.9% COLA in 2022, an 8.7% COLA in 2023, and a 3.2% COLA in 2024. In particular, the 8.7% adjustment of cost of living in 2023 was the highest. on a percentage basis in 41 years.

With the July inflation report from the Bureau of Labor Statistics in the books and the August inflation report due out on September 11th, we’ve seen the 2025 COLA forecasts tighten significantly.

The Senior Citizens League (TSCL), a nonpartisan advocacy group for seniors, began the year forecasting a COLA of 1.4% for 2025. Following the July Inflation Report, that estimate rose to 2.57%, which by definition it would round up to 2.6%.

Meanwhile, independent Social Security and Medicare analyst Mary Johnson, who recently retired from TSCL, had her 2025 COLA forecast drop from 3.2% after the April inflation report to 2.6% after the latest report .

Despite starting at opposite ends of the spectrum, TSCL and Johnson now effectively agree that the cost of living adjustment in 2025 will be 2.6%.

For the average Social Security recipient — that’s nearly 68 million recipients — a 2.6 percent COLA would translate to an extra $46.35 per check, based on the average payment of $1,782.74 in July 2024. However, this increase in benefits may vary from person to person. per person, as well as depending on the type of beneficiary.

For retired workers, who make up more than 51 million of the program’s nearly 68 million beneficiaries, a 2.6 percent COLA translates into an average monthly increase of $49.90.

By comparison, the average amount for the roughly 7.2 million disabled workers and nearly 5.8 million survivor beneficiaries would increase by $40.01 and $39.25, respectively, next year.

Image source: Getty Images.

COLA 2025 can make history and disappoint at the same time

Assuming TSCL and Johnson’s aligned forecasts are correct, a 2.6 percent cost-of-living adjustment would mark the smallest percentage increase in four years. While this might sound disappointing, it would still match the COLA average over the past 20 years.

More impressively, it would mark the first time since 1997 that Social Security’s COLA has reached at least 2.6% in four consecutive years. On a cumulative basis, benefits will have increased by almost 22% since the end of 2021, based on a 2.6% cost of living adjustment next year.

While it’s great on paper to see benefits growing at a faster rate than at any time in recent memory, there are also two disappointing realizations about Social Security’s 2025 COLA.

For starters, a 2.6% COLA is likely to result in a loss of purchasing power for beneficiaries, which has unfortunately been a common occurrence since the turn of this century.

TSCL released two studies that compared the cumulative COLA over time to the aggregate price increase for a basket of goods and services regularly purchased by seniors. Between January 2000 and February 2023, the purchasing power of a Social Security dollar is estimated to have fallen by 36%. In a separate study published in July 2024, TSCL found that the purchasing power of Social Security income has fallen by 20% since 2010.

With two of the biggest costs for the elderly — shelter and health care services — trailing 12-month inflation rates that are well above 2.6%, a loss of purchasing power seems all but guaranteed .

The other disappointment comes in the form of rapidly rising Medicare Part B premiums for the second year in a row. Part B is the segment of Medicare that covers outpatient services.

In May, the Report of the Medicare Administrators predicted monthly Part B premiums would rise to $185 in 2025, which equates to a 5.9 percent increase. This matches the percentage increase experienced in 2024.

Most Social Security recipients who are enrolled in Medicare have their Part B premiums automatically deducted from their monthly benefit. In other words, a second year in a row without a basic reason from Medicare B will minimize the impact of your future Social Security COLA.

Next year looks like one of those rare instances where history is made, but disappointment looms.