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The Social Security program undergoes several important changes each year to ensure benefit payments keep pace with inflation and wages. The most anticipated of those changes is the annual cost-of-living adjustment (COLA). That’s 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 concerning the 2025 COLA next week, but beneficiaries should know what to expect. Here is everything we know so far.
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Social Security’s 2025 COLA will be made official on Oct. 10
Social Security’s annual of cost-of-living adjustments (COLAs) protect the buying power of benefits by ensuring they increase at the same pace as inflation. In this situation, inflation is measured with a subset of Consumer Price Index known as the CPI-W.
The calculation is straightforward. The CPI-W in the third quarter of the current year (July through September) is divided by the CPI-W in the third quarter of the prior year. And the percent increase becomes the COLA in the next year. For instance, the CPI-W increased 3.2% in the third quarter of 2023, so Social Security recipients got a 3.2% COLA in 2024.
The Labor Department will publish September CPI-W data on Thursday, Oct. 10, at 8:30 AM ET. Not long after, the Social Security Administration will issue a press release detailing the official 2025 COLA. The press release will be available through this link. As a caveat, that link currently leads to information about the 2024 COLA, but it should be updated at some point during the day on Oct. 10.
In December, Social Security beneficiaries will receive a COLA notice by mail explaining their 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 pace to be the smallest 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 its previous estimate of 2.5%. The upward revision happened because 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 happened because inflation cooled more quickly than anticipated in August. TSCL’s projection is almost certainly more accurate at this stage, but both forecasts imply the smallest COLA since 2021.
The chart below shows how a 2.5% COLA would impact the average payout for different types of beneficiaries.
|
Type of Beneficiary |
Average Benefit (Before COLA) |
Average Benefit (After COLA) |
Additional Income |
|---|---|---|---|
|
Retired workers |
$1,920 |
$1,968 |
$48 |
|
Spouses |
$910 |
$933 |
$23 |
|
Survivors |
$1,509 |
$1,547 |
$38 |
|
Disabled workers |
$1,540 |
$1,578 |
$38 |
Data source: Social Security Administration. Payments have been rounded to the nearest dollar.
Social Security’s 2025 COLA comes with a silver lining
Social Security beneficiaries may find the 2025 COLA forecast disappointing, especially when payments increased 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024. But if benefits do indeed get a 2.5% COLA next year, the smaller raise would come with an important silver lining.
Social Security’s COLAs restore the buying power benefits lost in the previous year, which means beneficiaries are always behind the curve to some extent. However, larger COLAs are symptomatic of aggressive inflation, which diminishes buying power more quickly. But smaller COLAs are symptomatic of gradual inflation, which diminishes buying power more slowly.
Here’s the bottom line: Social Security benefits are on pace to get a 2.5% COLA in 2025, which means inflation has cooled significantly over the past year. Assuming that trend continues, Social Security benefits will lose buying power less quickly next year. In other words, the price of necessities like gas, groceries, and utilities should rise less quickly in 2025. That’s a silver lining for retirees, albeit a small one.
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