Bad news for retirees with Social Security Cost-of-Living Adjustment (COLA) forecast 2025 update
Retirees rely on the cost of living adjustment to cope with price increases brought about by inflation. Projections for the 2025 COLA are not promising.
The Cost of Living Adjustment (COLA) is an annual increase in Social Security and Supplemental Security Income (SSI) benefits to counteract the effects of inflation on the purchasing power of these programs’ beneficiaries.
These adjustments are automatic and designed to help protect the financial security of retirees and SSI recipients by providing a modest increase in their benefits, which are often the main source of their income.
Without the COLA, the purchasing power of Social Security benefits would gradually erode over time, making it more difficult for beneficiaries to afford essential goods and services such as food, housing, and healthcare.
How is COLA computed?
COLA is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next.
In the most recent computation, the CPI-W increased 3.2% in the third quarter of 2023, which brought about a corresponding 3.2% COLA for Social Security benefits this year.
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Bad news for retirees with Social Security Cost-of-Living Adjustment (COLA) forecast 2025 update
Projections for next year’s COLA do not look promising for retirees and other Social Security beneficiaries. According to the Senior Citizens League, it seems likely that the COLA for 2025 will be 2.6%, the smallest hike in recent years.
The purpose of COLA is to ensure that Social Security and SSI benefits keep pace with the rising cost of living, allowing beneficiaries to maintain their standard of living despite inflationary pressures.
However, the adjustments typically take effect in January of each year, and the amount of the increase is announced by the Social Security Administration in the fall prior. This means that benefits may not keep pace with actual inflation if the CPI-W for the whole year goes through a bigger increase than what had been computed to arrive at the COLA.