Seniors on Social Security will almost assuredly be getting a benefits increase in 2025. That's because Cost of Living Adjustments are built into the program to provide seniors with more money as prices rise. Early data suggests costs are up quite a bit, so retirees are going to see more money in their monthly payments.
However, it's important to note that if the 2025 raise comes in at the projected amount (or close to it), it will do something it hasn't done since 2008.
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Social Security's COLA is on track to hit a milestone it hasn't hit for a very long time
The exact raise Social Security retirees are going to get in 2025 hasn't been determined. It won't be settled for a while yet, since the benefits bump is based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) showing how much prices have risen year over year.
The Senior Citizens League is projecting, based on current CPI data, that the COLA that takes effect in 2025 will come in around 2.6%.
If that happens, or if TSCL is even close in its projections, something unprecedented will occur. The COLA will be above 2% for the fourth year running. As the table below shows, a four-year run of benefits increases topping 2% is something that has not happened since 2008.
| Year | COLA | Year | COLA | Year | COLA |
|---|---|---|---|---|---|
| 2003 | 2.1% | 2011 | 3.6% | 2019 | 1.6% |
| 2004 | 2.7% | 2012 | 1.7% | 2020 | 1.3% |
| 2005 | 4.1% | 2013 | 1.5% | 2021 | 5.9% |
| 2006 | 3.3% | 2014 | 1.7% | 2022 | 8.7% |
| 2007 | 2.3% | 2015 | 0% | 2023 | 3.2% |
| 2008 | 5.8% | 2016 | 0.3% | 2024 | 2.6% (projected) |
| 2009 | 0% | 2017 | 2% | ||
| 2010 | 0% | 2018 | 2.8% |
Table source: Social Security Administration
As you can see, raises had been trending lower for a long time, with retirees actually getting no benefits bumps at all in some years.
But, after the COVID-19 pandemic hit, things changed. Social Security recipients started getting big increases unlike any they'd seen in decades. This trend has continued, and if the 2025 COLA (announced in 2024) is close to the 2.6% estimate, this will be the first time since 2008 that an increase above 2.00% has happened for four years in a row.
What does this long period of big COLAs mean for retirees?
Getting four years of big raises isn't actually as great as it might seem for a couple of reasons.
One big issue is that the formula used to calculate COLAs bases the raise seniors get on a consumer financial index that measures spending among urban wage earners and clerical workers. This isn't a group that necessarily spends like seniors do. As a result, the formula may be underestimating the actual inflation experienced by retirees.
Another problem is that the reason the COLAs have topped 2.00% for three years (and most likely for four years after next year's raise is announced) is because of surging inflation. While there were hopes it would cool this year, the most recent data shows prices are up over 3.00% year over year, while the Federal Reserve's target rate for sustainable inflation is 2.00%. So, while retirees are getting more money in their checks, their buying power isn't getting better as they're left paying much higher prices.
So, hitting a milestone of four years of benefits increases above 2.00% isn't really a good thing. Retirees may enjoy getting the extra cash, but they'll need to ensure they're using it wisely to help them cope with the cost increases they're likely facing in today's economic climate. This can mean budgeting carefully for where the additional funds go to avoid taking too much out of savings too quickly in response to rising costs.
Having to cut back even when getting four years of raises may seem crazy, but inflation reduces the buying power of all your other money as well. Many years of surging prices take a toll on a fixed income, and responding sooner rather than later to this reality can help you preserve your financial security over the long term.
