You might not be impressed with the Cost of Living Adjustment (COLA) for Social Security in 2025, especially with what you have seen in the previous years, that is, higher increments in COLA. Inflation rates have been at a high level, however, due to the control measures imposed by the Federal Reserve, the COLA could be low in the coming years. If you are a Social Security beneficiary, you should stay up to date with any changes in COLA in order not to be taken by any surprises.
What to expect from the 2025 COLA
After a series of significant hikes in recent years, Social Security’s COLA for 2025 is shaping up to be far lower. Over the past three years, the COLA has jumped 18.8% in response to inflation. However, with inflation now cooling, experts suggest the 2025 COLA could be around 2.6% – or even lower.
The COLA is determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), and the data from July and August of this year indicate that inflation is slowing down. If current trends continue into September, the final quarter used for the COLA calculation, that 2.6% figure may end up being an optimistic ceiling. The recent drop in oil prices, along with a cooling economy, all point to weaker inflation in the near term, further pulling down the adjustment.
Why the 2026 COLA could be even worse
If you’re hoping that the 2026 COLA will bounce back, the Federal Reserve’s projections suggest otherwise. The Fed has been laser – focused on bringing inflation back to its 2% target, and according to their predictions, inflation is expected to fall even further in 2026. As of now, the personal consumption expenditures (PCE) index – a key measure of inflation – was at 2.5% in July. The Fed projects it will be down to around 2.1% by the end of 2025.
Lower inflation may sound good in theory, but for Social Security recipients, it spells smaller COLA increases. If the 2026 forecast holds, you might see a COLA adjustment even lower than the 2.6% expected for 2025 – potentially around 2.2%. This would mean less protection for your purchasing power in the face of rising prices.
What the Fed’s interest Rate strategy means for you
While the COLA might not be rising much, the Federal Reserve’s strategy of controlling inflation through interest rates could benefit you in other ways. Lower interest rates make it easier to borrow money, whether it’s for a mortgage, a car loan, or other debt. If you’ve been considering refinancing your home, for example, the Fed’s recent rate cuts could make that more affordable.
Additionally, if you have investments in dividend-paying stocks, you could see a positive effect as interest rates come down. Lower rates tend to push investors toward dividend stocks, which can drive up their value and provide you with more income.
Why falling Inflation is still good news
While smaller COLA adjustments might be frustrating, it’s important to remember that high inflation isn’t ideal either. COLA adjustments are reactive – they come after inflation has already raised the cost of living. So, by the time your Social Security check increases, you’ve already paid higher prices for things like groceries, gas, and utilities. In the long run, a more stable and predictable inflation rate is better for everyone, especially retirees.
As you plan for the coming years, it’s crucial to stay informed about how changes in inflation and interest rates might affect your benefits. Though the 2025 and 2026 COLA forecasts are lower than many would hope, falling inflation could offer some relief in other areas of your financial life.
