It’s official: Social Security benefits are getting a 2.5% COLA in 2025, but it comes with bad news for retirees

The Social Security Administration released a news release Thursday, Oct. 10, explaining that beneficiaries will receive a 2.5 percent cost-of-living adjustment (COLA) in 2025. That means the average retired worker’s monthly benefit will increase from $1,920 in August 2024 to $1,968. in January 2025. Retired workers have not received a smaller raise since 2021.

Unfortunately, there is more bad news. The Senior Citizens League, a nonpartisan advocacy group, estimates that benefits have lost 20 percent of their purchasing power since 2010 because COLAs have failed to keep pace with inflation. This pattern is set to continue next year.

Here are the important details.

Image source: Getty Images.

Social Security benefits will receive a 2.5% cost-of-living adjustment (COLA) in 2025

Social Security’s cost-of-living adjustments are designed to protect the purchasing power of benefits by ensuring that payments grow at the same rate as inflation. In this scenario, inflation is measured by a subset of the consumer price index known as CPI-W, which tracks price changes based on the purchasing patterns of hourly wage earners and office workers.

The calculation is simple: The average CPI-W reading from the third quarter of the current year (July through September) is divided by the average CPI-W from the third quarter of the previous year, and the percentage increase becomes the next year’s COLA. The chart below provides details on the 2025 COLA calculation.

Data source: Bureau of Labor Statistics.

As shown above, the average CPI-W in the third quarter of 2025 was 308.729, which is 2.5% higher than the average CPI-W in the third quarter of 2024. Thus, insurance benefits social benefits will receive a COLA of 2.5% in 2025. .

The chart below shows how the 2.5% COLA will affect the average Social Security payment that different types of beneficiaries receive each month.

Data source: Social Security Administration. Monthly payment amounts have been rounded to the nearest dollar.

Social Security’s 2025 COLA comes with bad news for retired workers

Inflation has cooled from its post-pandemic peak, but many retired workers are still struggling with the financial strain of high prices. Indeed, retirees listed inflation as their top financial concern in the Schroders 2024 US Retirement Survey. Additionally, less than half of participants believe they have enough money saved, and nearly half said retirement expenses are higher than expected.

Unfortunately, these financial problems are likely to worsen in the coming months as Social Security loses purchasing power in 2025. Many experts believe that the CPI-W is a poor indicator of price pressures for retired workers because it measures inflation based on spending. models of young, working-age adults. These people tend to spend money differently than Social Security recipients.

Most importantly, retirees generally spend more on housing and health care and less on food, education and transportation, according to Alicia Munnell, director of the Center for Retirement Research at Boston College. This means that the CPI-W underestimates the importance of housing and health care from the perspective of retirees, while overestimating the importance of food, education, and transportation.

CPI-W inflation in major spending categories has trended above average this year, while CPI-W inflation in less major spending categories has trended below average. That means CPI-W inflation understates the extent to which rising prices have hurt retirees, meaning Social Security will lose more purchasing power next year. In other words, even if beneficiaries get a 2.5% COLA, they may feel like they have a little less money in 2025.