The latest Social Security COLA estimate for 2025 has good news and bad news for retirees

Millions of American retirees collect a monthly Social Security benefit today. For some people, this is extra income on top of a large IRA or 401(k). But for others, these benefits make up the bulk of their monthly retirement income. And for people in the latter camp, annual Social Security cost of living adjustments, or COLAs, are extremely important.

The purpose of Social Security’s automatic COLA is to help recipients maintain their purchasing power as inflation drives the cost of living up year after year. Without the COLA, seniors who get the bulk of their retirement income from Social Security would undoubtedly suffer.

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But when the COLA for a given year isn’t so generous, Social Security recipients can suffer. And unfortunately, based on recent inflation data, it looks like the Social Security COLA in 2025 will be much lower than it was in 2024. There is, however, a big argument in this situation that seniors should be aware of.

Why the 2025 Social Security COLA is a mixed bag

In mid-July, the US Bureau of Labor Statistics (BLS) released its monthly consumer price index (CPI) reading. And that data included an update to the Consumer Price Index for Urban Wage and Service Workers (CPI-W), which is the subset of the CPI that is used to calculate annual Social Security COLAs.

Based on July’s CPI-W reading of 2.9%, the nonpartisan Senior Citizens League updated its 2025 Social Security COLA projection to 2.57%. Compared to the 3.2% COLA Social Security recipients achieved in early 2024, a 2.57% increase is a big disappointment.

But there is another side to the story.

A lower COLA is a big indication that inflation is coming down. And that, in turn, means that seniors on Social Security may be able to extend their benefits even further in the coming months and throughout 2025 as well.

It is also important to recognize that the 2.57% COLA projection mentioned above is only an estimate. Social Security checks are calculated based on third-quarter CPI-W data. As of this writing, the BLS has not even released CPI data for August. And since we’re only just into September, we clearly don’t have data for the last month of the quarter either.

Because of this, the actual Social Security COLA in 2025 could end up being higher or lower than 2.57%. And it’s too early to be too tired of that number. Only once the Social Security Administration announces an official COLA in October can you start making financial plans based on your projected monthly income for 2025.

Add your savings now

If you’re worried that the 2025 Social Security COLA will leave you in financial crunch, don’t just wait until the new year to do something about it. Instead, assess your current expenses and whether there is room to cut back. You may find that a few tweaks save you enough money to buy you some breathing room.

Remember, too, that the rate of inflation now is already below the 3.2% Social Security COLA recipients are getting today. So if you find you don’t need to spend your entire Social Security check each month on essentials, put the difference down.

Finally, don’t write off the idea of ​​joining the gig economy. Unlike a part-time job with a schedule you have to commit to, the job can be extremely flexible. And it can be really fun.

So, if you’re someone who depends heavily on Social Security and you’re feeling anxious about a potentially small COLA in 2025, start working a few hours a week to earn extra income. You might even find that you like the job you’re doing because it keeps you busy.