Social Security’s 2025 Cost-of-Living Adjustment (COLA) Is Shaping Up to Be a

For most retired Americans, Social Security isn’t just a check they receive each month. Rather, it represents a vital source of income that many would struggle to live without.

Even though the average payout in May was only $1,916.63 for Social Security’s roughly 51 million retired-worker beneficiaries, a whopping 88% of surveyed retirees in Gallup’s 2024 poll responded that their Social Security benefit comprises a “major” or “minor” part of their income. In other words, nearly nine out of 10 current retirees lean on America’s leading social program to make ends meet.

Given how reliant existing retirees are on Social Security income, it should come as no surprise that one of the most anticipated reveals of the year is the cost-of-living adjustment (COLA) announcement during the second week of October.

Unfortunately, this year’s COLA reveal is shaping up as a lose-lose for retirees.

Image source: Getty Images.

What is Social Security’s cost-of-living adjustment (COLA), and why is it so important?

In simple terms, Social Security’s “COLA” is the mechanism that allows the program to account for price changes in a broad basket of goods and services. We refer to these changes as inflation (rising prices) or deflation (falling prices).

For example, if a variety of goods and services that seniors regularly purchase increases in price, Social Security checks should, in a perfect world, rise by the same percentage to ensure that beneficiaries don’t lose purchasing power. Social Security’s COLA is this tracking tool that aims to keep benefits on par with inflation.

In Social Security’s early days (1940-1974), benefit hikes were passed along arbitrarily by special sessions of Congress. After no COLAs were doled out during the entirety of the 1940s, 11 total benefit adjustments were passed along between 1950 and 1974.

Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) became the standard measure of inflation for Social Security, which allowed for COLAs to be passed along on an annual basis. The CPI-W has more than half a dozen major spending categories and far more subcategories, all of which have their own respective weightings. These weightings are what allow the CPI-W to be chiseled down to a single figure each month, which makes it easy to tell if inflation or deflation has taken hold.

To calculate Social Security’s cost-of-living adjustment, trailing 12-month (TTM) CPI-W readings from the third quarter (July through September) of the current year are compared to TTM readings from the comparable period in the previous year. If the average third-quarter CPI-W reading is higher in the current year than in the previous year, inflation has occurred and beneficiaries will receive a larger benefit in the upcoming year.

The magnitude of this “raise” is determined by the year-over-year percentage increase in average third-quarter CPI-W readings, rounded to the nearest tenth of a percent. It’s that simple.

An elevated inflation rate has led to above-average COLAs in each of the last three years. US Inflation Rate data by YCharts.

What’s in store for Social Security’s 2025 COLA?

Although the TTM CPI-W readings from the other nine months of the year aren’t factored into the COLA calculation, they do offer plenty of clues as to what the future may hold.

In each of the three previous years, Social Security’s cost-of-living adjustment has come in well ahead of the two-decade average of 2.6%. For 2022, 2023, and 2024, program recipients saw their respective Social Security checks increase by 5.9%, 8.7%, and 3.2%. It should be noted that the 8.7% increase for 2023 was the largest “raise” for beneficiaries in 41 years!

Based on data from the U.S. Bureau of Labor Statistics’ (BLS) May inflation report, estimates for the 2025 COLA are at, or slightly above, the two-decade average.

Nonpartisan senior advocacy group The Senior Citizens League (TSCL) slightly reduced its forecast for Social Security’s 2025 COLA to 2.57% (which would round to 2.6%) from 2.66% following the release of the May inflation report.

Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson, who had previously worked with TSCL prior to her retirement, reduced her estimate for next year’s COLA to 3% from 3.2% after the BLS inflation report for May.

Though cost-of-living adjustments vary a bit, a 2.6% to 3% COLA — should these estimates prove accurate — would result in the average retired-worker beneficiary taking home $50 to $57 more per month in 2025.

Additionally, a Social Security COLA of 2.6% to 3% would result in a monthly benefit increase of $40 to $46 for workers with disabilities, and a $39 to $45 monthly…