Bad news for retirees: The 2025 Social Security COLA is breaking an ominous record

The Social Security Administration adjusts the amount that it pays beneficiaries on an annual basis depending on how much prices have risen over the course of the prior year. The cost-of-living adjustment, or COLA, helps keep the payments that roughly 70 million Americans receive each month from losing purchasing power due to inflation.

Unless you’ve been living under a rock somewhere, you are well aware that inflation after the pandemic reached levels many younger Americans have never experienced. That resulted in higher-than-normal COLA increases over the past four years and with the 2025 COLA increase of 2.5% an ominous record was set.

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Bad news for retirees: The 2025 Social Security COLA is breaking an ominous record

The latest COLA has set the longest stretch of increases above 2.5% since the last one ended in 1996. The SSA COLA increases for 2022 to 2025 have been 5.9%, 8.7%, 3.2% and 2.5% respectively. While there have been some years with increases of 2.5% or higher this century, inflation has been relatively low over much of that period resulting modest COLA increases, even 0% a couple of years, specifically 2009 and 2010.

While the COLA is intended to help keep monthly payments in line with inflation, the Senior Citizens League says that seniors are feeling the pinch of inadequate Social Security payments. In a recent report, ‘2024 Loss of Buying Power’, the advocacy group said that the average Social Security payment in 2024 is “worth only about 80 cents on the dollar compared to 2010.”

Most years since 2010, the COLA has been lower than the annual inflation rate, as the increase is calculated using inflation data from the third quarter of the year prior to the increase. The League also says that the government’s formula doesn’t adequately account for inflation in the types of expenses that seniors are grappling with such as health care.

Additionally, inflation hits those on fixed incomes harder than most other people. According to the SSA, “Social Security benefits represent roughly 30% of the income of people over age 65.” Around two out of five beneficiaries 65 or older receive at least 50% of their income from Social Security and for an eighth or more it’s 90% of their income.

Even those who have other sources of income from retirement investments and savings, those may have lost ground in terms of buying power if their asset allocation didn’t maximize returns.

The Social Security Administration began increasing benefits using an automatic annual COLA in 1975. The United States was in the middle of a period that is referred to as The Great Inflation. During nearly two decades several years saw annual price increases well in excess of those we’ve seen in the wake of the pandemic’s widespread disruptions.

While the Federal Reserve appears to have tamped down inflation successfully without throwing the economy into a recession, those efforts can’t undo the past four years of higher prices that consumers have had to deal with.