Social Security
Bad news for Social Security retirees, COLA 2025 may be cause for concern this year
Recipients of Social Security received an increase in benefits in 2025, as they do every year. However, new economic data and policies could spell trouble.
The Social Security Administration (SSA) has been boosting benefits on an annual basis since 1975 to avoid payments that go out to beneficiaries losing purchasing power due to inflation. Since the covid-19 pandemic, prices have been rising faster than normal and above the Federal Reserve’s target.
The result has been that the past four years have seen the longest stretch of cost-of-living adjustment (COLA) 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 that may give Social Security recipients a boost in their benefits there is special concern raised by new government data as well as potential new policies that could be implemented.
Inflation outpaces COLA increase in 2025
The SSA calculates the COLA increase based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the year (July, August, September) prior to that which it will be applied. If inflation falls from where it was going forward, then the boost to payments will be greater than how much prices are increasing.
On the other hand, benefits will more or less keep pace with inflation if it remains relatively flat throughout the year and into the next. However, in 2025, when the COLA was announced in October, inflation was accelerating once again, and in November and December it was above the 2.5% COLA increase for the next year.
Furthermore, the annual inflation rate for 2024 was 2.9%, meaning that the boost to Social Security benefits was less than inflation the economy had experienced over the whole of the year. The same was true the year before and in 2021.
In fact, most years since 2010, the COLA has been lower than the annual inflation rate. That means that the average monthly payments that Social Security retired beneficiaries received were hundreds of dollars less than they could’ve been.
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.”
New policies under Trump administration could worsen inflation
Donald Trump was sworn in as US president for a second time on January 20 and he has already begun implementing some of his policies which he campaigned on, and reiterated others to come, that will be felt in the US economy in the form of higher inflation. They include imposing tariffs on imported goods coming into the United States from the nation’s major trading partners. As well, carrying out a mass deportation program that could lead to labor shortages resulting in higher wages but also increased costs.
Additionally, He has proposed eliminating taxes on tips, overtime pay and seniors’ Social Security benefits. The Congressional Budget Office estimates that this could speed up insolvency of the Old-Age and Survivors Insurance Trust Fund by up to three years to 2031. Furthermore, after that happens, benefits would have to be cut by an estimated 23% across the board or $16,500 annually for the typical couple on receiving retirement benefits according to the Committee for a Responsible Federal Budget.
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