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Jon Krause
Social Security beneficiaries will get a 2.5 percent increase in their monthly payments next year, the Social Security Administration (SSA) announced Oct. 10.
The 2025 cost-of-living adjustment (COLA) is the lowest since 2021, reflecting a continued cooling of inflation following a surge in consumer prices during the COVID-19 pandemic
The 2.5 percent COLA will bump up the estimated average Social Security retirement benefit by $49 a month, from approximately $1,927 to $1,976, starting in January, according to the SSA. The estimated average survivor benefit will rise from $1,788 to $1,832 and Social Security Disability Insurance(SSDI) from $1,542 to $1,580.
“Inflation is clearly top of mind, not just for retirees, but for Americans generally, and the annual COLA provided by Social Security is a critical feature of the system,” says Rob Williams, managing director of financial planning at Charles Schwab.
“Some may feel the increase for 2025 is low relative to the inflation they feel in their pocketbooks,” Williams says. “Still, it’s a welcome increase that builds on a 5.9 percent increase in payments in 2022, 8.7 percent in 2023 and 3.2 percent this year.”
COLA follows prices — with a delay
The COLA is determined by year-to-year changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks price trends for a market basket of goods and services. The CPI-W is a subset of the overall Consumer Price Index, the federal government’s main gauge of inflation.
The 2025 adjustment represents the difference between the average CPI-W for July, August and September of 2024 and the average for those months in 2023. The U.S. Bureau of Labor Statistics reported Oct. 10 that the index rose at a 2.2 percent rate in September, following increases of 2.4 percent in August and 2.9 percent in July.
Because one year’s COLA reflects the prior year’s price trends, there can be a lag in how it affects retirees’ pocketbooks. For example, 2022’s 5.9 percent increase was outpaced by that year’s inflation, which reached 9 percent. That produced an 8.7 percent COLA for 2023, a year when inflation ebbed to 3.4 percent by December.
The 2025 COLA could still buttress beneficiaries’ buying power if the inflation rate continues to drop. However, the Federal Reserve’s Survey of Professional Forecasters is projecting that the main Consumer Price Index will hold steady at 2.4 percent through the first half of 2025. For more information on this topic go to https://www.aarp.org/retirement/social-security/info-2024/cola
Andy Markowitz covers Social Security and retirement for AARP. He is a former editor of the Prague Post and Baltimore City Paper.
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