Social Security saw a 3.2% cost-of-living adjustment (COLA) in 2024. The third-largest bump since 2011, it added roughly $59 per month to the average retiree's Social Security checks. But many seniors felt this wasn't enough. Roughly 63% of seniors felt the COLA was somewhat or completely insufficient, according to The Motley Fool's Social Security COLA research.
Now, with just a few months until the government announces the 2025 COLA, many are hoping for better news. We can't say for sure what kind of increase beneficiaries will get next year, but the data so far is giving some pretty strong hints.
Image source: Getty Images.
The 2025 COLA will probably be less than 2024's
The government will announce the official 2025 Social Security COLA in October, but all signs point to a smaller boost than retirees have seen over the last three years. Slowing inflation is to blame for that.
The Social Security Administration calculates COLAs by looking at average third-quarter inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the current and previous years. This represents the changing cost of a basket of goods and services over time.
When inflation is high, COLAs are high, and when inflation slows, COLAs are smaller. It sounds like a good system on the surface, but it has a major issue. The CPI-W doesn't actually consider the spending patterns of the elderly, which are often very different from those of urban workers.
The Consumer Price Index for the Elderly (CPI-E) tracks senior spending, and many feel this index should form the basis for COLAs instead. Data shows the shift would result in larger COLAs in most years. But while many have called for this change, it doesn't appear to be forthcoming, at least for now.
The latest 2025 COLA estimate is 2.57%, according to The Senior Citizens League (TSCL). This would add about $49 per month to the $1,918 average monthly benefit as of June 2024. It's definitely not a life-changing amount, and for some, it may not even cover the cost increases brought about by inflation over the last few years.
What seniors can do
The likelihood of a smaller 2025 COLA puts seniors in a difficult spot, especially if they rely primarily or exclusively upon Social Security. Once the government announces the official COLA in October, you can estimate how much you'll get from the program next year. The Social Security Administration will also send out personalized COLA notices in December.
When you know how far your checks will go in 2025, you can begin to plan how you'll cover your remaining costs. Personal savings will become increasingly important. If you don't have them, you might have to consider alternate sources of retirement income, like renting out a spare property, taking on a part-time job, or applying for other government benefits to help you with your essential costs.
