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2025 Social Security COLA forecasts updated: The good and bad news for seniors

With the May Consumer Price Index in hand we are able to update our forecasts for the 2025 Social Security COLA. Here is the good and bad news for retirees.

How to calculate the Social Security benefit reduction

The Bureau of Labor Statistics has released the May Consumer Price Index (CPI) report, which provides more information to project the 2025 Cost-of-Living Adjustment (COLA) that will be applied to benefits distributed by the Social Security Administration (SSA) next year. The SSA uses the CPI for for Urban Wage Earners and Clerical Workers (CPI-W) to calculate the COLA, and in May, the BLS tracked no change in the average price of goods and services included in this ‘basket.’

This year, a COLA of 3.2 percent was offered to beneficiaries, which was less than half of the 8.7 percent increase tacked onto benefits in 2023 as inflation wracked economies around the world. While the news from the BLS means that the COLA applied to benefits next year is likely to be smaller than that offered this year, a decrease in the CPI will provide much-needed relief to households, and in particular seniors on a fixed income, who often feel the pain of inflation more acutely as they have very few options to increase their income to regain purchasing power.

How high could the COLA reach in 2025?

Before the latest release from the BLS, the Senior Citizens League, a senior rights organization, had placed their projected 2025 COLA at 2.6 percent.

To calculate the COLA, the SSA compares the average of the CPI-W captured in July, August, and September of the current year to the same average captured last year. If the COLA were based on comparing the May figure to last year’s average for that quarter, seniors would see a rise in benefits of 2.3 percent. Since July is the first of the three months used in the calculation, the forecasts will begin to be a bit more accurate next month as they continue to approach the actual months that will be included in the calculation.