Social Security is the cornerstone of many retirement plans, with the program’s monthly checks accounting for more than 50% of total household income for half of those over age 65, according to data analyzed by the Social Security Administration (SSA).

This makes the annual cost-of-living adjustment (COLA) built into Social Security an important factor for retirees in setting their budget for next year. The COLA is designed to help ensure that benefits keep pace with inflation, which has been a growing challenge for many retirees in recent years.

Earlier this month, the U.S. Bureau of Labor Statistics released the first data that will go into calculating the COLA for 2025. Retirees who were hoping for another big increase in their monthly paycheck may find next year’s benefit increase a disappointment.

Here’s what we know so far and why next year’s COLA may not be enough for many retirees.

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This is what the Social Security COLA could look like in 2025

The annual cost-of-living adjustment is based on an inflation measure called the CPI-W, which measures the increase in the cost of a basket of goods commonly purchased by urban wage earners and office workers. The SSA will look at the average CPI-W value in the third quarter of the year (July through September) and compare it to the value in the third quarter of the previous year. The percentage increase will determine the COLA for the following year.

The Bureau of Labor Statistics released the CPI-W reading for July on August 14. The reading for August will be announced on September 11 and September on October 10. We won’t know the official COLA until the final numbers are in.

The CPI-W reading for July was about as expected at 308.501. For comparison, the average CPI-W reading in the third quarter of 2023 was 301.236. If prices remain unchanged over the next two months, retirees will receive a COLA of just 2.4%.

Of course, prices generally continue to rise, as low inflation is healthy for the economy. If they continue to rise at about the same pace as last month, retirees will receive a 2.6% boost. If the CPI-W falls back to the average of the last three-month period, retirees will receive a 2.5% boost in benefits.

Therefore, seniors currently have to expect a COLA of 2.5 to 2.6 percent for 2025.

That’s significantly less than cost-of-living adjustments in recent years. Retirees received a 3.2% increase in their monthly checks this year, after increases of 8.7% and 5.9% in previous years, respectively. These significant increases in monthly benefits came against a backdrop of rapidly rising inflation. The return to more normal inflation rates also means a return to more normal COLAs.

Still, many seniors may find that the 2025 COLA does not meet their needs.

Seniors’ spending is rising faster than their COLA

While Social Security uses the CPI-W as a measure of inflation, the Bureau of Labor Statistics also publishes an alternative index called the CPI-E, which measures the increase in prices for goods and services and reflects the purchasing habits of Americans age 62 and older—those who are eligible for Social Security benefits.

Last month, the CPI-E rose 3.2% year over year. The CPI-W, on the other hand, rose just 2.9%. In other words, seniors’ cost of living is rising faster than their Social Security checks. That could lead to a significant budget deficit for many next year.

The nonpartisan Senior Citizens League estimates that average Social Security benefits have lost 20 percent of their purchasing power since 2010. If that trend continues in 2025, retirees will continue to find that their pay increases are insufficient to meet their needs.

A COLA between 2.5% and 2.6% is not only a disappointment after three years of significant increases; it could also be a disappointment considering the real cost of living retirees face today. We’ll have to wait until October 10 for the official numbers, but retirees should prepare now to find extra room in their budgets in the face of rising costs.