2025 Social Security COLA announcement coming soon: Here’s how its calculated

Next week, the Social Security Administration (SSA) will announce the 2025 Cost-of-Living Adjustment (COLA) that will be applied to benefits starting in January. Though prices have continued to increase since the 2024 COLA was announced, the increase for next year is slightly smaller. The announcement will be made on Thursday, October 10.

How is the COLA calculated?

The SSA calculates the COLA by comparing price changes as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Average prices from the third quarter of the year (July, August, and September) from the current year are compared to the three-month average captured the year before. So far, we only have data from July and August, which comes out to an average of 308.570 compared to 300.725 for the same calculation for those two months in 2023. If COLA calculations were based on this data, recipients of all SSA programs would see their benefits rise by 2.6 percent in January.

How will this year’s increase compare to 2023 and 2024?

Last year, the COLA was 3.2 percent, following a staggering 8.7 percent increase tacked onto benefits in 2023. The current data indicates that the 2025 COLA will come in around 2.5 percent, and projections from the Senior Citizens League (SCL) mirror that.

So far this year, the CPI-W has only tracked an average drop in prices from May to June, meaning that for many households, higher prices continue to be a major obstacle. For seniors, many of whom, live on a fixed income, periods of high, and even moderate inflation, have a serious impact on their purchasing power. Over the last two decades, those over sixty-five have started to make up a greater share of the national labor force as retirement moves further out of reach.

The COLA is the only protection offered to protect the purchasing power of benefits, and the SCL has noted that it is ineffective in doing so. In a recent study published by the organization, researchers found that since 2010, the buying power of benefits has fallen 20 percent. The report highlights how the CPI-W does not adequately consider the particular shopping preferences of seniors, like housing. The Bureau of Labor Statistics, which calculates the CPI, also publishes the CPI for the Elderly (CPI-E), which better accounts for the consumer preferences of seniors. If we were to complete the same calculation above using the CPI-E data, we could get an annual increase of 3.1 percent—more than half a percent higher than the current COLA forecasts.

Efforts to use to the CPI-E

A few members of Congress, including Senator Bob Casey (D-PA) and Congressman Ruben Gallego (D-AZ), have introduced legislation that would allow the SSA to use the CPI-E to calculate the COLA, but efforts so far have failed.

In May, the Congressional Research Service (CRS) released a report on the possible impacts of switching to the CPI-E, noting that its use “would have equaled or exceeded the current law COLA in all but six years since 1986 (2005, 2008, 2011, 2018, 2021, and 2022).” Whereas the CPI-W has increased 188 percent between January 1985 and January 2024, the CPI-E has risen 211 percent, reports the CRS. The CRS also warns that the BLS considers the CPI-E experimental and that if it were to be used for such an important calculation, its methodology may need to be reviewed.