Social Security’s 2025 COLA is almost official: Here’s everything we know so far

The Social Security program undergoes several major changes each year to ensure that benefit payments keep pace with inflation and wages. The most anticipated of these changes is the annual cost of living adjustment (COLA). This is especially true in 2025, given that inflation has been a serious burden for many Americans in recent years.

The Social Security Administration will provide an official figure on the 2025 COLA next week, but recipients should know what to expect. Here’s everything we know so far.

Image source: Getty Images.

The Social Security COLA 2025 will be formalized on October 10

Social Security’s annual cost-of-living adjustments (COLAs) protect the purchasing power of benefits by making sure they grow at the same rate as inflation. In this situation, inflation is measured by a subset of the consumer price index known as CPI-W.

The calculation is simple. CPI-W in the third quarter of the current year (July to September) is divided by CPI-W in the third quarter of the previous year. And the percentage increase becomes COLA the following year. For example, the CPI-W increased by 3.2% in the third quarter of 2023, so Social Security recipients received a COLA of 3.2% in 2024.

The Labor Department will release September’s CPI-W data on Thursday, October 10 at 8:30 a.m. ET. Not long after, the Social Security Administration will issue a press release detailing the official COLA 2025. The press release will be available via this link. As a caveat, that link currently leads to COLA 2024 information, but should be updated sometime around October 10th.

In December, Social Security recipients will receive a COLA notice in the mail explaining the updated benefit amount for 2025. The document will also be available in the Message Center of the My Social Security portal.

Social Security’s 2025 COLA is on track to be the lowest since 2021

The Congressional Budget Office (CBO) is a nonpartisan agency that collects economic data and synthesizes it into projections to support the Congressional budget process. In June, CBO revised its 2025 COLA forecast to 3.1%, up from the previous estimate of 2.5%. The upward revision occurred as inflation reaccelerated in February and March.

The Senior Citizens League, a nonpartisan senior advocacy group, updated its forecast more recently. In September, TSCL revised its 2025 COLA forecast to 2.5%. down from 2.6%. The downward revision came as inflation cooled faster than expected in August. The TSCL projection is almost certainly more accurate at this stage, but both forecasts imply the lowest COLA in 2021.

The chart below shows how a 2.5% COLA would affect average pay for different types of beneficiaries.

Data source: Social Security Administration. Payments have been rounded to the nearest dollar.

Social Security’s COLA 2025 comes with a silver lining

Social Security recipients may find the 2025 COLA forecast disappointing, especially when payments are up 5.9% in 2022, 8.7% in 2023 and 3.2% in 2024. But if benefits actually get a COLA of 2.5% next year, the smaller increase would come with an important silver lining.

Social Security COLAs restore purchasing power benefits lost in the previous year, meaning recipients are always behind the curve to some extent. However, higher COLAs are symptomatic of aggressive inflation, which erodes purchasing power more quickly. But lower COLAs are symptomatic of gradual inflation, which erodes purchasing power more slowly.

Here’s the bottom line: Social Security benefits are on track for a 2.5% COLA in 2025, meaning inflation has cooled significantly over the past year. Assuming this trend continues, Social Security benefits will lose purchasing power less quickly next year. In other words, the price of essentials like gas, food and utilities should rise less rapidly in 2025. That’s a clear reason for retirees, albeit a small one.