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Projected COLA for 2025: July's update — how it's calculated and what it means for your retirement

Melanie Lockert
Updated
Projected COLA for 2025 (Douglas Sacha via Getty Images)

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

The SSA applies a cost-of-living adjustment — more commonly called COLA — to benefits each year to help you keep up with rising inflation. With inflation improving, the nonpartisan Senior Citizens League (TSCL) projects the Social Security COLA for 2025 at 2.63% as of July, revised from its lower prediction of 2.57% in June.

Despite adjustments, the TSCL estimate is trending downward from recent years, sparking worries of financial insecurity for seniors. However, there is still time for things to take a turn, as official COLA increases won’t be announced until October. Learn more about how Social Security COLA is calculated and its impact on seniors.

The cost-of-living adjustment aims to level the playing field and boost benefits in step with rises in inflation. The adjustments aren’t arbitrary. The Social Security COLA calculation uses data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) released by the Bureau of Labor Statistics at a specific point in time to inform the increase.

“The SSA COLA is not a mystery, it is based on the CPI-W,” says Brooke Petersen, CFP, ChFC and wealth consultant 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.”

Set by law, this calculation has been automatic since 1975, thanks to a COLA provision in the 1972 Social Security Amendments. Since 1975, there have been three years when the calculation resulted in a 0.0% COLA because there wasn’t an increase in the CPI-W: 2010, 2011 and 2016.

The current Social Security COLA projection for 2025 is 2.63%, according to the Senior Citizens League. TSCL updated its 2025 COLA prediction based on June's CPI-W data, which came in at 3%. TSCL’s projection increased slightly from 2.57%, when May's CPI-W came in at 3.3%

But remember, this is only an estimate of potential COLA increases for 2025. The official COLA increase uses third-quarter data from July to September, so it’s too early to tell. “Nearly everyone was wrong about the path of inflation this year,” says Petersen.

COLA has varied widely over the past 10 years. The lowest COLA in that timeframe was in 2016 at 0.0%, and the highest was in 2023, when COLA was a whopping 8.7%.

The Social Security 2024 COLA increase was a lower 3.2%.

Source: Social Security Administration

The projected 2025 COLA for Social Security is 2.63%, according to a July 11 TSCL release, resulting in another drop. That percentage is likely to change, but the concern is that the COLA increase isn’t enough.

A survey by the National Institute on Retirement Security echoes that sentiment, with 87% of respondents concerned about rising costs, and 66% worried about increasing healthcare costs in retirement.

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

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

The increase can help battle inflation and try to retain purchasing power, but other costs offset the benefit of your Social Security benefits.

“Medicare Part B premiums have the largest impact on the net amount of retirees' Social Security income since those premiums are deducted from the Social Security checks,” says Shedden.

The main issue is that the COLA increase doesn’t account for all of the added costs everyone’s facing, especially seniors paying for Medicare on limited incomes.

“As we have all experienced, the cost of goods and services are significantly higher,” says Petersen. He explains that the increases for Medicare Part B and Medicare Part D have significantly exceeded the Social Security COLA, eroding purchasing power.

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

As of now, the Social Security COLA projection for 2025 is a drop compared to the 2024 COLA, which could feel like a bigger blow. But we’ll have to wait until October to find out.

What is the average Social Security check?

The average Social Security check is $1,778.24 as of May 2024, according to data from the Social Security Administration. Individual benefits vary and could be more or less than the average.

How long has Social Security been around?

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

That first year, recipients received benefits as a one-time payment. Monthly Social Security benefits started in 1940.

For the 2024 tax year, your annual earnings limit is $22,230. If you'll 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 earnings before retirement might affect your Social Security benefits.

Melanie Lockert is an L.A.-born and Brooklyn-based freelance writer with a decade of experience in personal finance. Melanie started the Dear Debt blog in 2013 and chronicled 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 on Fortune Recommends, CNN Underscored, Yahoo Finance and Business Insider, among other publications. She is also the host of the Mental Health and Wealth Show and cofounder of the Lola Retreat, a finance event for women.

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