According to June 2024 data from the Social Security Administration (SSA), nearly 68 million people receive Social Security benefits. Many of them rely on Social Security for their financial well-being. For others, it may be their only source of income in retirement.

The SSA applies a cost-of-living adjustment — commonly called a COLA — to benefits each year to help you keep pace with rising inflation. With inflation on the rise, the nonpartisan Senior Citizens League (TSCL) projects Social Security’s COLA for 2025 to be 2.57% as of August, up from its higher prediction of 2.63% in July.

Despite adjustments, the TSCL estimate is down from recent years, fueling concerns about financial uncertainty among seniors. But there’s still time for a turnaround, as the official COLA increases won’t be announced until October. Learn more about how Social Security’s COLA is calculated and how it affects seniors.

How is the Social Security COLA calculated?

The cost-of-living adjustment is intended to level the playing field and increase benefits in line with rising inflation. The adjustments are not arbitrary. The Social Security COLA is calculated using data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) published by the Bureau of Labor Statistics at a specific point in time to determine the increase.

“The SSA COLA is not a mystery, it is based on the CPI-W,” says Brooke Petersen, CFP, ChFC and wealth manager at investment advisory firm Conrad Siegel. “The COLA is based on the percentage increase in the CPI-W from the third quarter of the previous year to the third quarter of the current year.”

This calculation is set by law and has been automatic since 1975, thanks to a COLA provision in the Social Security Amendments of 1972. Since 1975, there have been three years in which the calculation produced a COLA of 0.0% because there was no increase in the CPI-W: 2010, 2011, and 2016.

What is the COLA forecast for 2025?

Social Security’s current COLA forecast for 2025 is 2.57%, according to the Senior Citizens League. TSCL updated its 2025 COLA forecast based on July CPI-W data, which was 2.9%. TSCL’s forecast is down from 2.63%, when the CPI-W was 3% in June.

But keep in mind that this is just an estimate of possible COLA increases for 2025. The official COLA increase is based on third-quarter data from July to September, so it’s too early to make a forecast. “Almost everyone has been wrong about where inflation will go this year,” Petersen says.

COLA in the last decade: 2025 to 2024

The COLA has fluctuated wildly over the past 10 years. The lowest COLA during that period was 2016 at 0.0% and the highest was 2023 when the COLA was a whopping 8.7%.

The Social Security COLA increase for 2024 was lower at 3.2%.

Source: Social Security Administration

According to an August 14 email from TSCL, the projected COLA for Social Security in 2025 is 2.57%, which represents another decline. That percentage will likely change, but the concern is that the COLA increase is not enough.

A survey by the National Institute on Retirement Security reflects this sentiment: 87 percent of respondents are concerned about rising costs, and 66 percent are worried about rising health care costs in retirement.

What the 2025 COLA increase means for your retirement

If you’re currently receiving Social Security benefits, the projected Social Security COLA for 2025 can give you an idea of ​​what kind of increase you can expect. But you’ll have to wait for the official numbers.

“The COLA that will be applied to beneficiaries’ checks beginning in January 2025 will be calculated and announced in October 2024,” says Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts.

The increase may help fight inflation and maintain purchasing power, but the benefits of your Social Security benefits will be offset by other costs.

“Medicare Part B premiums have the greatest impact on retirees’ net Social Security income because those premiums are deducted from Social Security checks,” Shedden says.

The main problem is that the COLA increase does not take into account all the additional costs incurred by everyone, especially seniors who pay for Medicare despite low incomes.

“As we have all experienced, the cost of goods and services has increased significantly,” says Petersen, explaining that the increases for Medicare Part B and Medicare Part D significantly exceeded Social Security’s COLA and eroded purchasing power.

The increase in Social Security’s COLA in 2024 was a disappointment for many retirees.

As of this writing, Social Security’s 2025 COLA projection is a decline compared to the 2024 COLA, which might feel like an even bigger blow. But we’ll have to wait until October to find out.

Dig deeper: Original Medicare vs. Medicare Advantage: Which Health Insurance Coverage Should You Choose?

Frequently Asked Questions

How much is the average Social Security check?

According to the Social Security Administration, the average Social Security check will be $1,781.07 as of June 2024. Individual benefits vary and may be higher or lower than the average.

Since when has social insurance existed?

Social Security was signed into law by President Franklin D. Roosevelt in August 1935 with the Social Security Act to provide Americans with an income in retirement. The country began paying taxes into the program in 1937.

In the first year, recipients received the benefits as a lump sum. From 1940 onwards, social security benefits were paid in monthly installments.

How much money can I earn in retirement and still receive social benefits?

For the 2024 tax year, your annual income limit is $22,230. If you reach full retirement age in 2024, the most you can earn in the months before retirement is $59,520.

Enter your birthdate and salary into the SSA’s earnings test calculator to see how your pre-retirement income might affect your Social Security benefits.

Sources

• Retirement insecurity 2024: Americans’ views on retirement savings, National Institute on Retirement Security. Accessed May 22, 2024.

• Cost of Living Adjustment (COLA) Information for 2024, Social Security Administration. Accessed August 14, 2024.

• Cost of living adjustment for 2025 estimated at 2.57%, Senior Citizens League email. Retrieved August 14, 2024.

• Consumer Price Index Summary, U.S. Bureau of Labor Statistics. Accessed August 14, 2024.

• Monthly Statistical Snapshot, June 2024, Social Security Administration. Accessed June 21, 2024.

About the author

Melanie Lockert is a Los Angeles native and Brooklyn-based freelance writer with ten years of personal finance experience. Melanie started the blog Dear Debt in 2013, documenting her journey out of $81,000 in student loan debt. She published a book of the same name in 2016. Her personal finance expertise has been featured in Fortune Recommends, CNN Underscored, Yahoo Finance, and Business Insider, among others. She is also the host of The Mental Health and Wealth Show and co-founder of Lola Retreat, a financial event for women.