The Social Security Administration (SSA) announced that the 2025 cost-of-living adjustment (COLA) will be 2.5%, marking the lowest increase in four years. While this adjustment reflects slowing inflation, many seniors remain concerned about its adequacy in meeting rising costs of living.
What the 2.5% COLA means for beneficiaries
Starting January 2025, the average Social Security retirement benefit will rise from $1,927 to $1,976—a $49 monthly increase. Survivor benefits and disability benefits will also see modest increases. However, for retirees relying heavily on Social Security, this adjustment may fall short of covering key expenses such as healthcare, housing, and groceries.
2025 COLA announcement
The COLA for Social Security payments is designed to ensure that benefits keep pace with inflation. The 2.5% adjustment for 2025 is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter of 2024. This index tracks changes in prices for goods and services, but critics argue that it doesn’t accurately reflect the expenses most burdensome to retirees, such as medical care and housing.
In contrast to 2023’s historic 8.7% COLA—a response to soaring inflation post-pandemic—the 2025 increase reflects a slowing of inflation. While this is a positive economic indicator, it does little to alleviate the ongoing financial challenges faced by retirees. Kevin Thompson, CEO of 9i Capital Group, noted, “Shelter and medical costs have risen by 4.9% and 3.6% respectively, yet these increases are not fully captured by the COLA adjustments, leaving retirees struggling to keep up”
Recent trends in COLA adjustments
COLAs are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks inflation trends. The 2025 COLA is based on CPI-W data from July to September 2024. While inflation rates have cooled to around 2.2%–2.9% during this period, previous years saw higher rates.
Below is a look at COLA rates over the past four years:
| Year | COLA (%) |
| 2021 | 5.9 |
| 2022 | 8.7 |
| 2023 | 3.2 |
| 2024 | 2.5 |
The 2025 COLA marks a decline from the 8.7% adjustment in 2022, which followed peak inflation during the pandemic recovery. Historically, COLA increases have fluctuated, with some years seeing no increase at all.
Why seniors are concerned
While lower inflation is generally positive for the economy, many seniors feel the 2.5% increase does not adequately reflect the rising costs of essential services. Housing costs have climbed by 4.9% over the past year, and medical expenses have risen by 3.6%. For retirees on fixed incomes, these categories represent substantial portions of their budgets.
Kevin Thompson, CEO of 9i Capital Group, commented, “The pushback is justified because these prices aren’t expected to drop, only rise at a slower rate. When people hear ‘inflation is slowing,’ they know it means prices are still rising, just less rapidly.” This disconnect between COLA adjustments and real-world costs has led to calls for changes in how COLAs are calculated.
Calls for reform in COLA calculation
Critics argue that the current COLA formula does not adequately account for the spending habits of retirees. The CPI-W focuses on urban wage earners, whose expenses differ from those of seniors. Many experts have suggested adopting a CPI-E (Consumer Price Index for the Elderly), which gives greater weight to healthcare and housing costs—categories that disproportionately affect retirees.
“This year’s COLA is the lowest in recent years, reflecting the cooling inflation following thet post-pandemic surge,” Thompson added. “I believe the Social Security COLA should be adjusted to reflect the costs that most impact retirees, such as shelter and healthcare.” Such reforms, proponents argue, would better align adjustments with retirees’ financial realities.
