3 things to know about Social Security’s 2025 COLA as official announcement nears

Because millions of older Americans rely on Social Security to make ends meet, the program’s annual cost-of-living adjustments (COLAs) are important. COLAs are what allow benefits to keep pace with inflation — at least in theory — so seniors who get most or all of their Social Security income don’t get left behind.

The Social Security Administration (SSA) will be able to make an official COLA 2025 announcement on October 10. At that point, September inflation data should be available, which is currently the big missing piece of the puzzle needed to calculate this. number.

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But while everyone will have to sit tight a little longer to see what the 2025 Social Security COLA means, there’s already a decent amount of information out there. Here are some key insights into next year’s growth.

1. It will likely be lower than the 2024 COLA

Initial estimates call for a COLA of 2.5% in 2025. There’s a good chance the official number will be slightly higher or lower than that (though it’s possible the 2025 increase could end up being exactly 2.5%). In any case, seniors should expect the 2025 COLA to be less than the 3.2% increase in 2024.

It’s not a totally bad thing, though. Because Social Security COLAs are tied to inflation, a lower level generally means that the cost of living isn’t rising as quickly. And slowing inflation is good news for consumers in general.

2. It will be affected by changes in the cost of Medicare Part B

Seniors who collect Social Security and are enrolled in Medicare have their monthly Part B premiums deducted from their benefit payments. This makes life easier for seniors while ensuring those premiums are paid. However, when the cost of Medicare Part B increases greatly from year to year, it can negatively impact retirees’ COLAs by reducing the amount of Social Security Supplemental Security they receive.

The average monthly Social Security benefit today is about $1,920. And if the Social Security COLA in 2025 ends up being 2.5%, that results in an average increase of $48 per month. But if the cost of Medicare Part B goes up by $12 a month, it will cut 25 percent of that increase, leaving the average senior with just $36 more a month instead.

3. It will probably be short for seniors no matter what

Seniors who recently saw the estimated 2.5% COLA for next year may be hoping that their Social Security increase will somehow be higher. But even if that happens, there’s a good chance it will disappoint.

The reason? Social Security COLAs have a long history of not helping seniors keep up with inflation. The nonpartisan League of Senior Citizens reported last year that Social Security recipients have lost 36 percent of their purchasing power since 2000 because of insufficient COLAs.

A big part of the problem is how those COLAs are calculated. They are based on changes in the consumer price index for urban wage and service workers (CPI-W). But the CPI-W is not a senior-specific index at all. In fact, it is a generally poor measure of the costs faced by Social Security recipients because many are not employed and many do not live in urban areas.

Moving to a more senior-specific index could lead to higher COLAs in the future. But while such a change has been discussed by lawmakers, it is nowhere near being implemented.

While there’s still a little time left until an official 2025 Social Security COLA announcement arrives, there’s a lot to know about next year’s increase right now. Retirees should use this information to start preparing financially for 2025 — and also to avoid a surprise on October 10.