Social Security’s COLA could break a 32-year record in 2025. Will it?

Social Security retirees could experience something historic when it comes to the cost of living adjustment (COLA) next year. While the official word on the COLA won’t come until October, all signs point to it breaking a multi-decade record.

Here’s what could happen to the retirement benefit increase next year — along with some details on why it’s so unprecedented and whether it’s good or bad news for seniors.

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Here’s how COLA 2025 could break a 32-year record

COLA 2025 is about to break records for one simple reason. Expert estimates suggest retirees will get at least a 2.7% increase and potentially as much as a 3.2% increase. This is based on estimates from the Senior Citizens League and from Mary Johnson, a retired Senior Citizens League expert who creates her own estimate.

If the increase is as large as expected, it will be the first time since 1993 that COLAs have been 2.7 percent or higher for at least four consecutive years. The last time retirees got such a big Social Security boost, here’s what it looked like:

• 1990: 4.7% increase
• 1991: 5.4% increase
• 1992: 3.7% increase.
• 1993: 3.0% increase.

However, since that streak of big benefit increases, retirees haven’t had four consecutive years of increases at or above 2.7 percent. That could change next year. Here’s what it will look like if it is:

• 2025 COLA: Estimated growth of 2.7% to 3.2%.
• 2024 COLA: 3.2%
• 2023 COLA: 8.7%
• COLA 2022: 5.9%

These four years of raises add up to an even higher average benefit increase than in the 1990-1993 period. This is because inflation has risen to unprecedented levels in the wake of the COVID-19 pandemic, and COLAs are based on how much costs increase from year to year.

Unfortunately, that means today’s retirees have seen some of the worst price increases in generations. While big raises can be good news, record inflation is of course a problem for those on fixed incomes.

Will seniors see a record increase in benefits?

Of course, there is no guarantee that the experts will be right about the COLA 2025 project. However, there are reasons to believe that their projections will be quite accurate.

The COLA formula calculates benefit increases based on how much the Consumer Price Index for Urban Wage and Service Workers (CPI-W) shows prices have risen. Specifically, data from the third quarter is used to measure how much more a basket of goods and services cost this year than it did a year earlier.

While data for the third quarter of 2024 is not yet available, CPI-W data for the first six months of the year is. Experts have used these numbers to project inflation trends that will dictate the increase in benefits that retirees receive.

Until CPI-W data comes out for July, August, and September, seniors won’t know for sure whether they’ll end up with record gains or not. If they do, it will mean they are looking at another year when inflation has largely destroyed their purchasing power. This could mean their savings buy them less even as their Social Security benefits increase, something they need to take into account when budgeting to make sure their funds aren’t short.