Don’t expect a substantial cost of living amount (COLA) increase in your Social Security checks in 2025. The latest estimates put the COLA at 2.6%, according to the non-profit Senior Citizens League, down from 2.7% in July and 3.2% last year. The drop reflects the easing of inflationary pressures.
Unfortunately, good inflation news is bad news for the COLA. The easing inflation rate means retirees will get a smaller increase. While a lower inflation rate should lead to a smaller increase in prices, it does nothing to lower current prices for groceries, utilities or housing that many are struggling to meet.
Changes to the COLA are based on the CPI-W, which is a measure of price changes for a selection of goods and services, including food, energy and medical care, that is reported monthly by the federal Bureau of Labor Statistics. It is a subset of the Consumer Price Index (CPI.)
The Social Security Administration (SSA) published wage base projections for 2025 through 2033 in the 2024 Social Security and Medicare Trustees Report. The May 2024 projections estimated an increase in 2025 to $174,900 on the low end and $175,500 on the high end. The wage base is the maximum amount of earnings subject to Social Security tax and was $168,600 in 2023.
How is the COLA amount determined?
The COLA is determined by the inflation observed in July, August, and September in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). These months are crucial for setting the Social Security benefit increase for the upcoming year. The SSA calculates the percent change between average prices in the third quarter of the current year with the third quarter of the previous year. Until then, it is possible, if not likely, that the projected amount could go up or down based on final inflation numbers for those months.
Recent proposals to change the CPI used to formulate the COLA and better reflect the costs paid by senior citizens has so far failed. The change is meant to put more in seniors wallets and put them in a better position to meet the expenses typical of a person 65 and over. Proposals call for the COLA to be based on the Consumer Price Index for Americans aged 62 or older (CPI-E), as this price index reflects the costs incurred by older adults more accurately. Medical expenses, an increasing burden on older adults, are weighted more heavily in the CPI-E than in the CPI-W, the current measure used to determine the annual COLA.
Projected COLA for 2025
The projected COLA for 2025 is 2.57%. The projection is based on the July CPI numbers, which is the first of three sets of numbers the SSA will use to determine the 2025 COLA.
The COLA for 2025 will be reflected in Social Security checks starting in January of that year. This happens every year, although the payment may occasionally arrive a few days early due to holidays or weekends.
Ultimately, we will have to wait until October to find out what the final COLA for 2025 will be.
Recent COLAs
Prior to 1975, Social Security benefit increases were set by legislation. From 1975-82 COLAs were effective with Social Security benefits payable for June in each of those years. The first COLA, for June 1975, was 8%.
The highest COLAs have been when inflation was at its highest. For 1979 the rate was 9.9%, in 1980 it was 14.3% and in 1981 it was 11.2%. The COLA in 1982 dropped to 7.2% as the economy improved and inflation was on the decline. In 2009 and 2010 the COLA was 0%. The COLA spiked again in 2021 and 2022 during the rampant inflation triggered by the pandemic and was 5.9% and 8.7% respectively. The COLA fell considerably last year to 3.2%.
