- As new government data shows inflation subsiding, Social Security beneficiaries may expect a lower cost-of-living adjustment in 2025.
- The prospective Social Security COLA for 2025 could be the lowest since 2021, according to a new estimate.
Even as new government inflation data shows inflation subsiding, many retirees are still struggling under the weight of higher costs.
Next year’s Social Security cost-of-living adjustment, or COLA, may not provide much relief.
In 2025, the Social Security COLA may be 2.6%, according to Mary Johnson, an independent Social Security and Medicare policy analyst.
That’s down from the 3.2% boost to benefits Americans saw in 2024. It’s also substantially lower than the 8.7% COLA Social Security beneficiaries received in 2023, and the 5.9% increase for 2022.
The prospective Social Security COLA for 2025 would be the lowest since 2021 but in line with the average cost-of-living adjustments for the past two decades, according to Johnson.
The estimate for 2025 is still subject to change. The annual Social Security cost-of-living adjustment is calculated based on third-quarter data from a subset of the consumer price index, known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
The size of the official increase may change as new CPI data comes in.
The Social Security Administration typically announces the COLA for the following year in October.
Older Americans feeling ‘lingering effects’ of high costs
More than half of adults ages 50 and up — 61% — worry they will not have enough money to support them in retirement, according to a recent AARP survey.
Inflation is also a persistent concern for those older Americans, with 37% worried about covering basic expenses such as food and housing. Meanwhile, 70% are worried about prices rising faster than their incomes.
High inflation tends to hurt retirees more than near-retirees, since retirees’ income is less likely to go up as prices rise, according to the Center for Retirement Research at Boston College.
Social Security benefits — which are adjusted annually for inflation — are an exception.
However, some experts argue the annual increases to benefits have fallen short.
The average Social Security benefit has lost 20% of its buying power since 2010, according to recent research from the Senior Citizens League, a nonpartisan senior group.
Today’s average monthly benefit for retired workers would have to increase from $1,860 to $2,230 — nearly 20% — to keep pace with 2010 buying power, the group’s research found.
More from Personal Finance:
How to get your personal Social Security benefit estimate
Record backlog leads to $1.1 billion in improper Social Security payments
How retirement ‘super savers’ amass the biggest 401(k) balances
Another measure for the cost-of-living adjustment — the Consumer Price Index for the Elderly, or CPI-E — may better reflect the costs retirees face, advocates including the Senior Citizens League have said.
However, not all experts agree the cost-of-living adjustment measure should be changed.
While the annual adjustments are now calculated using a backward-looking method, they tend to fully compensate for inflation over time, Alicia Munnell, director of the Center for Retirement Research at Boston College, previously told CNBC.com.
Though the CPI-E has previously risen faster than the currently used measure for the cost-of-living adjustments, that gap narrowed in recent years, research from the Center for Retirement Research found. Consequently, switching to the CPI-E may not be the most effective move, the authors argued.
