Social Security’s 2025 Cost of Living Adjustment (COLA) Forecasts Agree — Here’s How Much the Average Check Is Expected to Increase Next Year

No event is more anticipated by the more than 68 million Social Security recipients than the annual cost-of-living adjustment (COLA) disclosure. That’s because most retirees need their monthly Social Security check in some capacity to cover their expenses.

For more than two decades, Gallup has conducted annual surveys that assess retirees’ reliance on Social Security as a source of income. This year, for example, 88% of retirees noted that it is a “major” or “minor” source of income, only 11% said it is not necessary. In other words, most Americans would likely struggle without the financial foundation that Social Security provides.

In just 11 days — October 10 is the magic date to circle on your calendar — Social Security’s 2025 COLA will be revealed. With several forecasts now in agreement on the size of this COLA, we can now estimate how much the average check is expected to increase next year.

Image source: Getty Images.

Social Security’s COLA has an important purpose

Before we dig into the nitty-gritty of how much Social Security benefits will increase in 2025, it’s pretty important to understand what purpose the cost-of-living adjustment serves.

In a utopian world, the price we pay for goods and services would never change, and beneficiaries would not have to worry about Social Security income losing purchasing power. But in the real world, the price of almost everything we buy fluctuates over time and often increases. Social Security’s COLA is tasked with ensuring that beneficiaries do not lose their purchasing power over time.

From the first mailed check to retired workers in January 1940 until December 1974, there was no established system for allocating COLA. Rather, arbitrary sessions of Congress passed from time to time along with the COLA. After no adjustment in the 1940s, a record 77% COLA was enacted in 1950.

Beginning in 1975, the Consumer Price Index for Urban Wage and Service Workers (CPI-W) took over as the inflationary tool used to calculate annual COLAs. The CPI-W takes into account the price change of more than 200 goods and services, each of which has its own percentage weights. These weights allow the CPI-W to be expressed as a single figure each month and facilitate month-to-month and year-to-year comparisons.

Although the CPI-W is reported monthly, only the last 12 months in the third quarter (T3), from July through September, are considered in Social Security’s COLA calculation. Simply put, if the average value of the CPI-W in Q3 of the current year is higher than in the comparable period last year, prices have risen collectively (ie, inflation). When this happens, the benefits increase in the following year.

The magnitude of this increase is simply the year-over-year percentage change in the average third quarter CPI-W readings, rounded to the nearest tenth of a percent.

A prevailing downward inflation rate means the 2025 COLA will be the lowest in four years. US Inflation Rate Data by YCharts.

Here’s how much Social Security checks will grow in 2025

Projections for Social Security’s 2025 cost-of-living adjustment started at opposite ends of the spectrum this year.

In January, the Senior Citizens League (TSCL), a nonpartisan senior advocacy group in Virginia, estimated that Social Security’s 2025 COLA would be a disappointing 1.4 percent. But after numerous updates, TSCL is now forecasting a 2.5% cost of living adjustment for 2025.

On the other hand, independent Social Security and Medicare analyst Mary Johnson, who recently retired from TSCL, forecast a relatively robust COLA of 3.2% following the April inflation report. However, this estimate has declined with each subsequent report and now stands at 2.5% TSCL for 2025.

While nothing is set in stone — September’s inflation report is the last piece of the puzzle needed to definitively calculate Social Security’s 2025 COLA — both major forecasters agree on a 2.5 percent COLA for next year.

But the percentages tell only part of the story. Assuming TSCL and Johnson’s predictions prove accurate, let’s take a closer look at how much the average Social Security check is expected to grow in 2025. For this exercise, I’ll use the average payments for August.

Based on data from the Social Security Administration, the average benefit awarded to more than 68 million beneficiaries in August was $1,783.55. A COLA of 2.5% would see the average check increase by $44.59 per month next year.

But this increase could vary significantly, depending on type of beneficiary:

• The average retiree can expect their monthly check to increase by $48.01 to $1,968.49 with a 2.5% cost-of-living adjustment in 2025.
• For disabled workers, a 2.5% COLA would increase the average monthly benefit by $38.50 per month to $1,578.42.
• Survivor beneficiaries should see their average monthly payments increase by $37.73 to $1,547.09 with a 2.5% COLA.

While this would represent the lowest percentage COLA since 2021, it is still above the average COLA of 2.3% passed over the past 15 years.

Image source: Getty Images.

The COLA from Social Security doesn’t cut it for most retirees

Although beneficiaries are about to receive another decent (on paper) COLA after nearly a decade of disappointment — no COLAs were passed in 2010, 2011 and 2016 due to deflation, and the smallest positive COLA on record was administered in 2017. (0.3%) — the reality for most retirees is that Social Security COLAs don’t cut it compared to the inflationary pressures they face.

Based on data from the August inflation report, the costs of shelter and health care services rose by 5.2 percent and 3.2 percent, respectively, over the past year. Both expenses count considerable more for seniors than average working Americans and growing at a rate considerably faster than the projected 2025 COLA.

Given that the CPI-W focuses on the spending habits of “urban wage and service workers,” who are often working-age Americans who do not currently receive a Social Security benefit, the stage is set, by most times, for social security benefits to lose purchasing power.

In mid-July, TSCL released an analysis that found the purchasing power of a Social Security dollar has fallen 20 percent since the beginning of 2010. In addition, the prevailing inflation rate for a given year exceeded the assigned COLA in 10 of the last years. 15 years.

Making matters worse, Medicare Part B premium is expected to see yet another staggering increase in 2025. Part B is the section of Medicare responsible for outpatient services.

According to the Medicare Administrators Report, the Part B premium is projected to increase 5.9% in 2025 to $185 per month, which would match the 5.9% increase seen this year. Most retired workers age 65 and older (that is, Medicare enrollment age) automatically have their Part B premiums deducted from their monthly Social Security check.

If Part B increases by more than twice the 2025 COLA rate, it’s a near certainty that most retirees will see at least some of their cost-of-living adjustment reversed.

YesSocial Security benefits will increase in 2025, but the cost to retirees continues to far outweigh any reward.