Here’s the real problem with the 2025 Social Security Cost of Living Adjustment (COLA).

There’s a reason Social Security benefits are eligible for an annual cost-of-living adjustment (COLA). If benefits remained constant from year to year, seniors would lose purchasing power over time due to inflation. For this reason, benefits are adjusted for inflation to prevent seniors from being left behind.

Right now, you may be anxious to know what your Social Security COLA will be in 2025. And unfortunately, you’ll have to sit tight a little longer.

Image source: Getty Images.

The Social Security COLA is based on the third quarter inflation date. Since September is not over yet, there is no inflation reading for the month. And until that data becomes available, the Social Security Administration (SSA) cannot publish an official COLA.

But based on what we know so far, it looks like the 2025 Social Security COLA will be somewhere around 2.5%. This is the working estimate based on July and August inflation readings. And it’s also a considerably lower number than seniors’ most recent COLA — a 3.2 percent increase that boosted benefits beginning in 2024.

But while a lower 2025 COLA is a frustrating enough thing for seniors to face in itself, there’s an even bigger problem with next year’s COLA that retirees should be aware of.

If you rely on Social Security, you’ll probably fall behind

A stingy Social Security COLA is bad news, beyond the matter of less money in your monthly benefits. Even when COLAs are more generous, they tend to do a poor job of helping seniors keep up with the cost of living. And the 2025 COLA will probably be no exception.

The problem is how Social Security COLAs are calculated. These are based on readings from the Consumer Price Index for Urban Wage and Service Workers (CPI-W). But all you have to do is read the name of that index to realize it’s not exactly aimed at seniors — not even close.

Urban wage earners and service workers tend to be younger Americans who do not receive Social Security benefits. That doesn’t mean that none on social security holds a job. But for the most part, it’s fair to say that the CPI-W doesn’t accurately capture the costs Social Security recipients face because they’re likely to face different expenses than working people.

As just one example, healthcare can be a burdensome expense for everyone. But older Americans — those eligible for or on Social Security — are more likely to spend a larger share of their income on medical expenses because health problems tend to come with age.

The CPI-W does not take this and similar factors into account. And because of this, seniors on Social Security have lost purchasing power year after year.

A change that could improve your financial picture in 2025

You cannot rely on the 2025 Social Security COLA to improve your personal financial situation. But one thing you maybe do to improve your finances is to join the gig economy.

Working as a retiree isn’t what it used to be. These days, you don’t have to commit to a retail program or resign yourself to a part-time office job. You can find gig work that you enjoy to a reasonable degree and invest a few hours a week to earn extra money. Plus, you can choose your own schedule so you’re not locked into hours that don’t work for you.

If you love pets, for example, you can sign up to care for them while their owners travel during your off-peak hours. If you don’t mind hitting the road, you can drive for a rail service a few afternoons a week — or a few a month, if that’s a better schedule for you.

Any extra money you earn is money you can use to pay bills or cover your savings. And that could make a lower Social Security COLA much less of a problem.

The SSA will be able to make an official Social Security 2025 COLA announcement on October 10. But don’t wait that long to come up with a game plan for improving your finances in the new year. Instead, look at some options to generate income yourself so you can manage your senior expenses with a lot less stress.