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Social Security increase for 2025: what is the cost-of-living adjustment (COLA) forecast for the next year?

Social Security benefits set to rise by 2.6% in 2025, but lower inflation tempers increases, leaving retirees with modest gains. Explore the impact and future outlook.

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The Cost of Living Adjustment (COLA) for Social Security benefits in 2025 had been forecast by The Senior Citizen League (TSCL) to be 2.7%. Recently, the forecast was reviewed lower because inflation has cooled more than anticipated in May.

What is Social Security’s COLA

The Social Security Cost-of-Living-Adjustment (COLA) is an increase in a beneficiary’s monthly payment measured by inflation. COLA is the tool that determines how much benefits should increase from one year to the next. Social Security beneficiaries usually receive an annual COLA to protect the buying power of their benefits from inflation.

COLA Forecast for 2025

The Cost of Living Adjustment (COLA) for Social Security benefits in 2025 has been forecasted by The Senior Citizen League (TSCL) to be 2.7%. Recently, the forecast was reviewed lower since inflation has cooled more than anticipated in May.

The table below shows how the 2.6% COLA would affect the monthly benefits for the different Social Security recipients. This is according to the Social Security Administration.

Beneficiaries Average Benefit Before 2.6% COLAAverage Benefit After 2.6% COLAChange 
Retirees$1,916$1966$50
Spouses$911$935$24
Survivors$1504$1543$39
Disabled Workers$1,538$1,578$40

Social Security benefits may be losing purchasing power

Although the 2.6% COLA may bring joy to those receiving the social security benefits, it does not change much in real terms when fully examined.

The Social Security Administration calculates or determines COLA based on inflation change in the third quarter of the year (July to September). This is measured using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W tracks the spending habits of “urban wage earners and clerical workers” which is different from the spending habits of retirees. The wage earners spend their money differently than 86% of Social Security beneficiaries who are 62 or older.

For instance, retirees spend more of their monthly budgets on shelter and medical care services than the average American.

For this reason, some experts believe COLA should be tied to the Consumer Price Index for the Elderly (CPI-E) which tracks the spending habits of individuals aged 62 and older.

Here is a comparison between the CPI-E and CPI-W inflation according to the US Bureau of Labor Statistics.

DatesCPI-E Inflation CPI-W Inflation 
January 20243.5%2.9%
February 20243.4%3.1%
March 20243.7%3.5%
April 20243.6%3.4%
May 20243.6%3.3%
Average 3.6%3.3%

The CPI-E inflation has increased considerably more than that of CPI-W which means the Social Security COLA will be underestimating the inflation by 0.3%. This will make retirees continue to struggle financially. At this rate, they are advised to spend wisely or get a part-time job.

Another reason why the Social Security Benefits may be losing buying power is the amount of taxes. There is always taxation of the social security benefits. Social Security income is taxed based on a metric called combined income. This combined income equals a sum of half your social security benefits, your adjusted gross income, and any non-taxable interest income. As your benefit increases, so does your combined income and therefore your taxes, unless thresholds are also raised, which they are often not.

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