Millions of seniors rely on Social Security, with some so dependent on their benefits that it's their primary source of income in retirement. Around 1 in 5 adults over age 50 even say they have no other retirement income outside of their benefits, according to a 2023 report from the Nationwide Retirement Institute.
For those depending on Social Security to pay the bills, the annual cost-of-living adjustment (COLA) can be a lifesaver. The COLA is an annual boost in benefits that aims to help Social Security maintain its buying power over time. In 2024, the COLA was 3.2%, increasing the average retired worker's benefit from $1,848 per month to $1,907 per month.
The COLA is based on third-quarter inflation data, and the Social Security Administration (SSA) will make its official announcement in October after the September inflation report is released. But some experts are already forecasting the 2025 COLA, and there's both good and bad news about where it might land.
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The 2025 COLA prediction
Some experts are already tracking inflation data so far this year to get an estimate of where the COLA for 2025 may land. Based on the preliminary data, seniors may be disappointed.
Analysts at advocacy group The Senior Citizens League have predicted that next year's COLA could sit at around 2.6%. That's not only lower than 2024's adjustment of 3.2%, but it would be the lowest COLA since 2021.
| Year | COLA |
|---|---|
| 2021 | 1.3% |
| 2022 | 5.9% |
| 2023 | 8.7% |
| 2024 | 3.2% |
| 2025 (Predicted) | 2.6% |
Source: Social Security Administration. Table by author.
However, a smaller adjustment isn't necessarily a bad thing. Again, the COLA is based on inflation data -- specifically, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The SSA calculates the changes in the CPI-W year over year, and if the current year's data is higher than the previous year's, the percentage increase will be the COLA for the next year.
In short, this means that if inflation is increasing, the COLA should increase along with it. This is how the SSA attempts to help benefits maintain buying power over time. A smaller COLA, then, suggests that inflation is slowing down year over year.
Social Security's problems are still hurting seniors
The COLA is designed to help benefits keep up with rising inflation. Research shows, though, that despite these annual adjustments, it's still struggled to maintain buying power over time.
In a separate, ongoing study, The Senior Citizens League found that Social Security lost around 36% of its buying power between 2000 and 2023. The report also revealed that retirees would need around $517 more per month just to maintain the same amount of buying power that they would have had in 2000.
Part of this problem comes down to the fact that the data used to determine the COLA doesn't necessarily reflect seniors' spending habits. The COLA is based on inflation data from the CPI-W, an index that focuses on the spending habits of current workers.
There's a separate index to track seniors' spending: the Consumer Price Index for the Elderly (CPI-E). While many argue that this index should be used for calculating the COLA (which could result in larger raises for beneficiaries), the SSA hasn't made the switch yet.
There are multiple reasons behind the SSA's reluctance to change the COLA calculations, but it could partly be due to the program's cash-flow issues. As the program's trust funds continue to dwindle, benefit cuts could be on the horizon in the next decade or so. Higher COLAs could worsen the SSA's already difficult cash shortage problem, potentially resulting in cuts happening even sooner than expected.
What can you do right now?
There's not much you can do about the upcoming COLA or Social Security's struggles to maintain buying power. But if you're able to reduce your dependence on your benefits even slightly, that can help protect your retirement.
It may be difficult to save more if you're already retired, but if you can cut back on expenses to preserve the savings you already have, that can help your nest egg last longer. Similarly, picking up a side job or a source of passive income can also help reduce how much you need to rely on Social Security.
If nothing else, staying informed about Social Security's limits can make it easier to spend wisely in retirement. When the SSA makes its official announcement in October, you can ensure you're prepared for its effect on your retirement.
