Social Security payments are an important source of income for millions of retired people living in America. This program is aimed at providing financial stability for those who rely on monthly benefits to cover their expenses. As 2025 is just around the corner, many retirees are waiting for the news about the upcoming cost-of-living adjustment (COLA) so they can be aware of how much their benefits might increase. Unfortunately, this information is not going to be available until October.
This is because the Social Security COLAs are based on inflation data, which is collected throughout the third quarter of the year. This quarter is still in progress, and the final figure is still unsure.
Based on the preliminary estimates, there is a chance that Social Security recipients might face disappointment in 2025. below are two key reasons why the upcoming COLA could be smaller than many imagined.
1. Revised COLA Estimate Predicts a Smaller Increase
In July, the nonpartisan Senior Citizens League projected that the Social Security COLA for 2025 would be at around 2.63%. Furthermore, this estimate has already represented a modest increase, which is being compared to previous years, but recent research on inflation data has led the group to revisit its projection, which was downward to 2.57%. This is considered a drop from the 3.2% COLA that Social Security beneficiaries received at the beginning of 2024.
One keynote is that a smaller COLA indicates that inflation is reducing. This fact could provide some financial relief to retirees. Although there is a contract in the room, some prefer a larger increase in their Social Security payments.
Must note: A smaller COLA indicates less of a raise; this, in other words, could make it harder for retirees to keep up with rising costs, even as inflation is slowing down.
2. COLAs have historically lagged behind inflation
Assuming that there’s a chance that the 2025 COLA estimate could be revised upward in the coming months, there is still a slim chance that next year’s adjustment will be just enough to help beneficiaries keep their purchasing power. This reason is because Social Security COLAs have historically struggled to keep up with inflation, which leaves many retirees with less purchasing power over time.
According to the Senior Citizens League, from the period of 2000 to 2023, seniors who received Social Security benefits lost an alarming 36% of their purchasing power. This significant loss is largely a result of flaws in the way Social Security COLAs are calculated.
Many suggest that the Consumer Price Index for the Elderly (CPI-E) would be a more accurate measure of the costs that Social Security recipients bear. However, despite these calls for a change in the method of calculation, no new system has been adopted; this simply means that COLAs are most likely to continue disappointing retirees. Unfortunately, 2025’s COLA is expected to be no exception.
