Social Security serves as a financial lifeline for millions of retired seniors today. Even retirees with savings often depend heavily on those benefits to cover their ongoing expenses. So it stands to reason that each year, beneficiaries are eager to get the most generous cost-of-living adjustment (COLA) possible.
The purpose of COLAs is to help Social Security recipients maintain their buying power as inflation drives living costs upward. Social Security benefits are eligible for a COLA each year, but a raise is not guaranteed. And there have been several years in the program's history when no COLA was given.
At the start of 2024, Social Security benefits received a 3.2% COLA. That brought the average monthly benefit up from $1,848 to $1,907.
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Understandably, Social Security recipients would like to see an even bigger COLA in 2025. But based on what we know so far, that's unlikely to happen.
Why 2025's COLA is shaping up to be smaller
Social Security COLAs are based in changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from one year to the next. Based on the inflation data we have so far, the projected Social Security COLA for 2025 is 2.63%.
Many seniors advocates feel strongly that the CPI-W is an imperfect measure for COLA calculations, since the index isn't heavily weighted by costs that are common to retirees. But for now, it's the basis for COLAs until lawmakers implement a change.
But let's get back to that 2.63% COLA estimate for 2025. That number is still subject to change -- for better or worse. The reason? Social Security COLAs are calculated based on third quarter inflation data. So seniors will need to sit tight until October for an official COLA announcement. However, since inflation has cooled in 2024, so far, next year's Social Security raise is shaping up to be smaller.
What it will take for a larger 2025 COLA -- and why seniors shouldn't hope for it
For 2025's Social Security COLA to be larger than 2024's, inflation will really need to pick up in the coming months. And that's not something any senior -- or working-aged consumer, for that matter -- should be hoping for.
The fact of the matter is that easing inflation might do seniors on Social Security a whole lot more financial good than a slightly more generous boost to their monthly benefits. Rising inflation could make it much more difficult to keep up with essential expenses, from groceries to gas to utilities. So nobody should be rooting for a third quarter spike in inflation despite the potential impact it might have on Social Security.
In fact, Social Security recipients are generally wired to believe that smaller COLAs are a bad thing. But it can be argued that they're actually a positive thing, since they're a sign of easing inflation.
Of course, without a crystal ball, it's difficult to predict how inflation will trend in the next few months. It's possible that it will, in fact, pick up, leading to a larger raise for seniors in the coming year. But while that could happen, it's not something anyone should want.
