2 Reasons Social Security’s Latest 2025 COLA Estimate Is Good News

Each year, Social Security benefits are eligible for a cost-of-living adjustment, or COLA. The purpose of COLAs is to make it possible for seniors on Social Security to maintain their purchasing power as inflation increases the cost of living over time.

Because the Social Security COLA is based on third-quarter inflation data, it’s too early to release an official number for 2025. That can’t happen until October 10.

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Based on inflation readings to date, it is possible to come up with an estimate of next year’s Social Security COLA. As of mid-September, that estimate is 2.5 percent, according to the Senior League.

At first, it might seem like bad news. Not only is a 2.5% COLA lower than previous COLA estimates, but it’s also slightly lower than the 3.2% increase for seniors in Social Security received in early 2024.

But the latest Social Security COLA estimate for 2025 isn’t negative at all. Here are two reasons why this is surprisingly positive news.

1. It is a sign of cooling inflation

The Social Security COLA is not based on future readings of inflation — it is based on past readings of inflation. For example, the 2025 Social Security COLA is based on inflation data from July, August, and September 2024. It is not based on what economists think inflation will be in 2025.

Because those COLAs are tied to inflation readings, there is a clear relationship between lower Social Security increases and lower prices. While you may have hoped for a higher COLA in 2025, recognize that a lower one means the cost of living isn’t rising as fast as before.

In other words, while your monthly Social Security benefits may not increase as much as you’d like in 2025, you may also find yourself spending less money on things like groceries , gas, clothing, utilities and other essential expenses. What you lose in one respect, you gain in another. And you might actually come out ahead financially with a lower Social Security COLA if the inflation rate continues to decline in the new year.

2. You still have a chance to make the most of this year’s COLA

As we just discussed, the reason the Social Security COLA estimate in 2025 comes to 2.5% is due to slowing inflation. But this gives you a great opportunity to be able to bank some savings by the end of the year.

Because inflation is lower this time of year than it was at the beginning, you may not need to spend your entire Social Security check each month. This gives you a chance to save some of that money for 2025, when you might need it thanks to a lower COLA. And now that you know next year’s COLA may not be as generous as you’d hoped, you can take action and make smart spending decisions in the coming months.

An official announcement is coming soon

The Social Security Administration won’t release an official 2025 COLA announcement until October 10th, but it’s fair to say that the current estimate of 2.5% is reasonably accurate. While that could change a bit over the next few weeks, the final number is unlikely to be far from where it is today.

Even if the Social Security COLA in 2025 comes to or even below 2.5%, that’s not necessarily terrible news. All retirees should go out of their way to get the look.