Social Security saw a 3.2% cost-of-living adjustment (COLA) in 2024. This is the third-largest increase since 2011 and increased the average retiree’s Social Security checks by about $59 per month. However, many seniors felt it wasn’t enough. According to The Motley Fool’s Social Security COLA study, about 63% of seniors felt the COLA was somewhat or completely inadequate.

Now, with just months to go until the administration announces the 2025 COLA, many are hoping for better news. We can’t say for sure what kind of increase beneficiaries will receive next year, but the data so far provides some pretty strong clues.

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The COLA for 2025 will likely be lower than that for 2024

The government will announce Social Security’s official COLA increase for 2025 in October, but all signs point to it being smaller than what retirees have seen over the past three years, thanks to slowing inflation.

The Social Security Administration calculates COLAs by using third-quarter average inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the current and previous year, which represents the changing costs of a basket of goods and services over time.

When inflation is high, COLAs are high, and when inflation is declining, COLAs are lower. On the surface, this sounds like a good system, but it has a big problem. The CPI-W doesn’t really take into account the spending habits of older people, which are often very different from those of urban workers.

The Consumer Price Index for Seniors (CPI-E) tracks seniors’ spending, and many believe that index should be the basis for COLAs instead. Data shows that the change would result in higher COLAs in most years. But while many have called for this change, it doesn’t seem to be on the horizon, at least for now.

According to the Senior Citizens League (TSCL), the latest COLA estimate for 2025 is 2.57%. This would add about $49 per month to the average monthly pension of $1,918 in June 2024. This is definitely not a life-changing amount, and for some, it may not even cover the cost increases caused by inflation over the past few years.

What seniors can do

The likelihood of a lower COLA in 2025 puts seniors in a difficult position, especially if they rely primarily or exclusively on Social Security. Once the government announces the official COLA in October, you’ll be able to estimate how much you’ll receive from the program next year. The Social Security Administration will also send out personalized COLA notices in December.

Knowing how far your checks will go in 2025 will help you start planning how you will cover your remaining expenses. Personal savings are becoming increasingly important, and if you don’t have any, you may need to consider alternative sources of retirement income, such as renting out a vacant property, taking on a part-time job, or applying for other government benefits to cover your essential costs.

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