The Social Security Administration (SSA) has announced a 2.5% Cost-of-Living Adjustment (COLA) for 2025, marking the smallest increase since 2021. This adjustment, which translates to an average monthly increase of around $50 per recipient, is designed to help beneficiaries maintain their purchasing power in the face of inflation. However, this modest boost has sparked concerns among retirees and advocates for older Americans, as many argue that the increase does not keep pace with rising living costs.
How the 2025 COLA was calculated
The annual COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). which measures inflation during the third quarter (July through September) of the previous year. This index reflects the price changes experienced by workers for a set basket of goods, not necessarily retirees. As inflation has eased from its pandemic-era highs, the 2025 adjustment is lower than in previous years.
For comparison, Social Security beneficiaries received a 3.2% increase in 2024 and a 8.7% boost in 2023 due to the historic inflation seen in the wake of the pandemic.
Now that inflation is stabilizing, the lower adjustment signals a return to normal COLA increases, but retirees may still feel financial strain as the COLA does not fully capture the specific costs they face, particularly in healthcare.
Financial impact on retirees
For the average retiree, the 2.5% COLA increase will raise monthly Social Security benefits from approximately $1,927 to $1,976. Couples receiving benefits together will see their combined payments rise from $3,014 to around $3,089. The increase will take effect with the January 2025 payments.
Despite this boost, many retirees argue that it is not sufficient to offset the rising costs of living, particularly in essential areas such as healthcare, prescription medications, and housing. Sherri Myers, an 82-year-old retiree from Pensacola City, Florida, expressed concern that her increased benefits wouldn’t make a noticeable difference in her budget. Like many older Americans, Myers finds it difficult to manage day-to-day expenses, which have been impacted by persistent inflation.
Criticism of the CPI-W formula
A key criticism of the current COLA calculation is that the CPI-W does not reflect the true spending patterns of retirees. Since it tracks workers’ expenses, it fails to account for the disproportionate share of older Americans’ income spent on healthcare and other senior-specific costs. Many advocacy groups, such as the Senior Citizens League, have argued for the adoption of a different metric, the Consumer Price Index for Elderly Consumers (CPI-E). This index would focus more on healthcare, prescription drugs, and other essential goods that disproportionately affect older Americans.
The lack of a tailored adjustment mechanism has long been a source of frustration. According to the Senior Citizens League, the purchasing power of Social Security benefits has declined by 20% over the past 14 years, meaning that many retirees are finding it increasingly difficult to make ends meet.
Why the 2025 COLA is lower
While inflation has cooled in recent months, the costs most heavily affecting retirees, particularly healthcare, continue to rise faster than other goods and services. This has prompted calls for reform in how the COLA is calculated. The SSA’s current method, which reflects general consumer price trends, often does not capture the full impact of inflation on senior citizens.
The small COLA for 2025 reflects the overall decrease in inflation, which has fallen from the 40-year peak seen in June 2022. Although this is positive news in terms of the broader economy, it presents challenges for those on fixed incomes, especially seniors who rely on Social Security as their primary source of income.
