As 2025 approaches, there is significant speculation about whether the Social Security Cost-of-Living Adjustment (COLA) could break a record that has stood for over three decades. Expert projections suggest that retirees will receive at least a 2.7% increase and potentially a raise as high as 3.2%. This projection is based on estimates from the Senior Citizens League, and an independent analyst, a retired expert at the Senior Citizen League who created her estimate, Mary Johnson.
What Is COLA?
The Cost-of-Living Adjustment (COLA) is a critical feature of Social Security that aims to ensure that benefits keep pace with inflation. First introduced in 1975, COLA is determined by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the corresponding quarter of the following year. This adjustment helps maintain the purchasing power of Social Security benefits over time.
In the early 1980s, the U.S. experienced a period of high inflation, leading to some of the most significant COLA increases in history. The largest COLA on record was a staggering 14.3% in 1980, followed by 11.2% in 1981. These adjustments were necessary to help retirees cope with the rapidly increasing cost of living.
Since then, COLA increases have been more modest, reflecting periods of relatively low inflation.
What will be the record increase in 2025 COLA?
If the raise is as big as projected, this will be the first time since 1993 that COLAs have been 2.7% or higher for at least four years running. The last time retirees had a streak of such big Social Security raises, here’s what it looked like:
- 1990: 4.7% raise
- 1991: 5.4% raise
- 1992: 3.7% raise
- 1993: 3.0% raise
Since that run of big benefit bumps, however, retirees have not seen four consecutive years of raises equal to or above 2.7%. That could change next year. Here’s what it will look like if it does:
- 2025 COLA: Projected 2.7% to 3.2% raise
- 2024 COLA: 3.2%
- 2023 COLA: 8.7%
- 2022 COLA: 5.9%
These four years of raises add up to an even higher average benefit increase than during the 1990-1993 period. That’s happening because inflation has surged to unprecedented levels in the wake of the COVID-19 pandemic, and COLAs are based on how much costs increase year over year.
However, this also means that retirees of today have seen the worst inflation rate in generations.
The increase or decrease of prices is shown or reflected by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The COLA formula calculated benefits increase based on how much the CPI-W shows that prices have gone up.
COLA for the next year will be determined by the data from the third quarter, which measures how much more goods and services cost this year than it did in the last year.
While 2024’s third-quarter data isn’t yet available, the CPI-W data from the first six months of the year is. Experts have used these numbers to project trends in inflation that will dictate the benefits increase retirees get.
