2025 Social Security COLA: 2 Reasons Retirees Are Heading for Disappointing News

Social Security is an important source of income for millions of retired Americans today. And those who depend on those monthly benefits to pay the bills are no doubt eager to find out what the 2025 cost-of-living adjustment (COLA) will amount to.

Unfortunately, this information will not become available until October. That’s because the Social Security COLA is based on inflation data from the entire third quarter of the year, which we’re still in the middle of.

Image source: Getty Images.

But based on what we know so far, it looks like Social Security recipients are headed for disappointment amid the 2025 COLA. Here are some key reasons why.

1. The latest COLA estimate is lower than the previous ones

In July, the nonpartisan League of Senior Citizens projected that the 2025 Social Security COLA would rise to 2.63 percent. But given July’s inflation index, the group has since revised its projection down to 2.57%. This is considerably less than the 3.2% COLA Social Security recipients received in early 2024.

Of course, it’s worth noting that a lower Social Security COLA indicates lower inflation. And a slower rate of inflation could offer retirees a world of financial relief. But still, given the choice, most seniors would probably prefer to receive a larger Social Security increase than a smaller one.

2. COLA has historically failed to keep pace with inflation

There is a chance that the Social Security COLA estimate for 2025 will be revised upward next month and that next year’s increase will ultimately be higher than the current projection of 2.57 percent. But even if that happens, the 2025 COLA will most likely not be enough to make it possible for beneficiaries to maintain their purchasing power. And the reason for this is that Social Security COLAs have long failed seniors in this regard.

Between 2000 and 2023, seniors on Social Security lost an astounding 36 percent of their purchasing power, according to the Senior Citizens League. And that’s because of a flaw in the way Social Security COLAs are calculated.

COLAs are determined by measuring changes in the Consumer Price Index for Urban Wage and Service Workers (CPI-W). But the CPI-W doesn’t do a great job of capturing the costs that seniors on Social Security tend to face. And it’s not too much of a stretch to realize that the expenses that are most common for urban earners may not match the expenses that Social Security recipients tend to incur.

Advocates have proposed changing the way Social Security COLAs are calculated by using a CPI-E, or consumer price index for seniors. But until a new system is adopted, COLAs will likely continue to disappoint. And the 2025 increase will likely be no exception.

Don’t set yourself up to become dependent on your Social Security COLA

It is unfortunate that a lower COLA in 2025 will hurt many retirees. If you’re still working, aim to establish enough non-Social Security income that a smaller raise at some point isn’t such a problem.

Steadily funding an IRA or 401(k) plan is a great way to accumulate a nice nest egg. And even if you started later, you can always catch up by making spending changes to free up cash for long-term savings.

Another strategy you may want to use if you’re not yet on Social Security is to delay your claim as long as possible—that is, until you turn 70. Doing so can increase your monthly benefits by 24% or a little more, depending on your full retirement age. And if you’re able to start with a larger monthly Social Security check to begin with, any COLA that comes down is likely to put more money in your pocket.