Social Security retirees in 2025 looking for the smallest increase in 4 years

The US Bureau of Labor Statistics recently released inflation data for August. The numbers were roughly in line with expectations and continue to suggest that retirees are looking for a smaller increase in Social Security benefits in 2025 than in recent years. At this rate, retirees could soon see the smallest increase in their benefits since 2021. This comes after rising inflation led to some of the biggest increases in Social Security benefits in decades. Let’s take a look at where things stand.

How COLA works

Each year, there is a cost of living adjustment (COLA) for Social Security benefits. The goal is to ensure that the purchasing power of benefits keeps pace with inflation, although some would argue that the current COLA calculation methodology has fallen short of that goal.

The Social Security Administration (SSA) calculates the COLA by analyzing data from the Consumer Price Index for Urban Wage and Service Workers (CPI-W), which tracks price changes in a market basket of goods and services. Specifically, the SSA looks at the CPI-W during the third quarter of the year, which includes the months of July, August, and September, and compares it to readings from those months a year earlier. For example, the 3.2% COLA in 2024 was calculated using the quarterly average CPI-W figures below.

Data source: Social Security Administration.

The Federal Reserve has spent the past two and a half years raising interest rates to control some of the highest inflation in decades. It fell from a peak of 9.1% in June 2022 to 2.5% last month (based on the consumer price index for all urban consumers).

Here’s where things stand for the 2025 COLA calculation — September’s CPI-W number, the final piece of the puzzle, is due next month.

Data source: Social Security Administration

Based on July and August CPI-W figures, next year’s COLA would be 2.6%, and the final figure is likely to fall closer to that number than last year’s 3.2%.

Smallest COLA adjustment in four years

A COLA in the mid-2% range may come as a surprise to many Social Security recipients after getting payout increases of 5.9% in 2022, 8.7% in 2023 and 3.2% last year. But they must remember that 2022 was the largest increase in 12 years, while 2023 saw the largest COLA in more than four decades.

According to the Senior Citizens League, retirees have seen their benefits lose purchasing power over the years due to inflation and a faulty COLA calculation. While a lower COLA may seem disappointing at first, remember that the reduced inflation behind this number also means that the cost of living for retirees is rising more slowly.