The 3.2% Social Security cost-of-living adjustment (COLA) for 2024 was a bit of a disappointment after the 8.7% COLA for 2023 set a 40-year high. It's been especially tough for seniors who depend heavily on their benefits, as inflation is picking up speed once again.
Many are now shifting their focus to the 2025 COLA, set to be announced this fall, in the hope that it will bring some relief. There's a lot we don't know yet, but here are three things we do know.
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It'll be based on third-quarter inflation data
The Social Security Administration bases COLAs upon the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This records the average price of a basket of goods over time. The government looks at inflation data from the third quarter -- July, August, and September -- from the current year and the previous one when determining COLAs.
To calculate the 2024 COLA -- officially known as the 2023 COLA for the year it was calculated in -- the government took the CPI-W figures from July, August, and September of 2022 and 2023 and averaged them like this:
| Month |
CPI-W for 2022 |
CPI-W for 2023 |
|---|---|---|
|
July |
292.219 |
299.899 |
|
August |
291.629 |
301.551 |
|
September |
291.854 |
302.257 |
|
Q3 Total |
875.702 |
903.707 |
|
Average (rounded to nearest 0.001) |
291.901 |
301.236 |
Source: Social Security Administration.
Then, they subtracted the 2022 average from the 2023 average and divided it by the 2022 average to determine the increase in costs and thus, the COLA:
(301.236-291.901) / 291.901 * 100 = 3.2%
The Social Security Administration will do the same thing to calculate the 2025 COLA, except it'll base its data on the CPI-W figures from 2023 and 2024.
It'll be officially announced on Oct. 10, 2024
The government needs inflation data from July, August, and September of this year to calculate the COLA, so it's not officially announced until October. This year, we'll learn what the official COLA is on Oct. 10.
The change goes into effect for the December 2024 benefit. But the Social Security Administration doesn't pay benefits until the month after they're due, so you won't notice a difference to your checks until you get your January 2025 payment.
Current projections put the 2025 COLA at 2.6%
The latest estimate from The Senior Citizens League (TSCL) puts the 2025 COLA at 2.6%. This would add approximately $50 to the average (as of March 2024) Social Security check of $1,931 per month. But there's a strong possibility the real COLA will be higher than this.
Though inflation has fallen sharply from its high in 2022, it's been rising again since last fall. If this trend continues, it could lead to larger CPI-W figures for the third quarter and, thus, a larger COLA. This increase in inflation has already caused TSCL to raise its 2025 COLA projections several times. Back in January, it predicted a 1.4% COLA, which it later revised to 1.75% before its latest update pegged it at 2.6%.
Larger checks undoubtedly sound appealing to some, but it's important to recognize what they mean: High COLAs are a sign of high inflation, and many argue that because of inconsistencies between the CPI-W and actual spending patterns of older Americans, Social Security's buying power is eroding, even with the above-average COLAs we've seen the last few years.
Wherever the 2025 COLA comes in at, it's not going to eliminate the need for alternative income sources for seniors. Personal savings or a steady paycheck will still prove invaluable resources for those hoping to maintain their financial security through the coming years.
