Social Security income is protected from inflation by annual cost-of-living adjustments (COLAs). Benefits got an 8.7% COLA last year and a 3.2% COLA this year, both above the 10-year average of 2.3%. But many Social Security beneficiaries are still feeling financial pressure in the current economic environment.
The 2024 Retirement Confidence Survey (RCS) conducted by the Employee Benefit Research Institute, a nonprofit group, found that 56% of retired workers expect to make substantial spending cuts to keep pace with inflation, and 26% doubt they have enough money to live comfortably through retirement.
Unfortunately, the 2025 COLA is on track to be the smallest raise for beneficiaries in four years, according to The Senior Citizens League (TSCL), a nonprofit advocacy group. However, the Social Security Administration is several months away from announcing an official figure, and TSCL has increased its COLA forecast for three consecutive months.
Read on to learn more.
Social Security benefits are on track to get a 2.6% COLA in 2025
Social Security benefits get an annual cost-of-living adjustment (COLA) based on third-quarter inflation, meaning the three-month period that runs from July through September. Many readers are probably familiar with the Consumer Price Index. The Social Security Administration measures inflation using a subset of that metric known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The process is simple: Take the Q3 CPI-W from the current year and divide it by Q3 CPI-W from the previous year. The percent increase becomes the COLA for the following year. For instance, the CPI-W increased 3.2% in last year’s Q3, so Social Security benefits got a 3.2% COLA this year.
The Senior Citizens League (TSCL) expects Social Security benefits to increase 2.6% in 2025. That would be the smallest COLA in four years but still above the 10-year average of 2.3%. The chart below shows how a 2.6% COLA would impact the average Social Security benefit for different types of beneficiaries.
| Beneficiary Type | Average Monthly Benefit (Current) | Average Monthly Benefit (After COLA) | Additional Monthly Income |
|---|---|---|---|
| Retired Workers | $1,913 | $1,963 | $50 |
| Spouses | $911 | $935 | $24 |
| Survivors | $1,503 | $1,542 | $39 |
| Disabled Workers | $1,537 | $1,577 | $40 |
Data source: The Social Security Administration. Note: Benefit amounts have been rounded to the nearest dollar. The chart shows how a 2.6% COLA in 2025 would impact the average Social Security benefit paid to retired workers, spouses, survivors, and disabled workers.
As shown above, if Social Security benefits get a 2.6% COLA in 2025, the average retiree would get an addition $50 per month.
The Social Security COLA forecast keeps getting bigger
As mentioned, the Social Security Administration cannot calculate the official 2025 COLA until Q3 CPI-W data is available. The Labor Department will not publish that information until Oct. 10, 2024, so the current forecast is subject to change.
In fact, TSCL has revised its forecast higher three times already this year, as detailed below.
- In January, TSCL estimated that Social Security benefits would increase 1.4% in 2025.
- In February, TSCL raised its COLA forecast to 1.8% after CPI-W inflation increased 2.9% in January.
- In March, TSCL bumped its COLA forecast to 2.4% after CPI-W inflation accelerated to 3.1% in February.
- In April, TSCL nudged its COLA forecast to 2.6% after CPI-W inflation accelerated to 3.5% in March.
In short, inflation has consistently topped expectations, so TSCL has repeatedly revised its COLA forecast higher. That may sound like good news, but there are two problems. First, CPI-W inflation in March exceeded the 3.2% COLA applied to benefits this year, meaning Social Security income lost buying power because it increased more slowly than consumer prices. That trend will persist for as long as CPI-W inflation remains above 3.2%.
Second, CPI-W inflation may understate the financial pressure on Social Security beneficiaries. I say that because the CPI-W tracks prices based on the spending patterns of workers, but workers spend money differently from retirees on Social Security. For instance, retirees usually spend more on housing — think insurance, rent, and utilities — and that spending category has been hit particularly hard by inflation.
We can see the impact of rapidly rising household expenses by examining the CPI-E, a metric that tracks prices based on the spending patterns across the 62-and-older population. The CPI-E increased 3.5% in January, 3.4% in February, and 3.7% in March. In other words, the CPI-E has increased faster than the CPI-W in every month this year, so CPI-W inflation may understate the financial pressure on retired workers and other Social Security recipients.
Here’s the bottom line: The Social Security Administration is still several months away from calculating the official 2025 COLA, but prices are currently increasing faster than benefits, so retired workers and other Social Security beneficiaries should do what they can to minimize unnecessary spending.
Additionally, a little extra income could go a long way in the current economic environment. That doesn’t necessarily mean getting a part-time job. With interest rates at their highest level in decades, certain high-yield savings accounts look particularly attractive.
