A recent survey from Nationwide Retirement Institute found that two-thirds of adults don't know Social Security benefits are protected from inflation.

Fortunately, retired workers and other Social Security recipients get annual cost-of-living adjustments (COLAs) designed to offset inflation. Those scheduled pay increases protect the purchasing power of benefits. For instance, the Consumer Price Index (CPI) -- a popular measure of inflation -- has risen 66% in the last two decades. Meanwhile, COLAs have added 67% to Social Security benefits.

The Social Security Administration will announce the official COLA for 2025 on Thursday, Oct. 10. Here's what to expect.

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Social Security's 2025 COLA will be announced on Oct. 10

Social Security's annual cost-of-living adjustments (COLAs) are based on how inflation changes in the third quarter, which runs from July through September. In this scenario, a subset of the Consumer Price Index known as the CPI-W is used to measure inflation.

Here's how the math works: The third-quarter CPI-W from the current year is divided by the third-quarter CPI-W from the previous year, and the percent increase (if any) becomes the COLA in the following years. Importantly, COLAs cannot be negative. So, if the third-quarter CPI-W declines in any given year, benefits are not adjusted downward.

Based on that information, the Social Security Administration cannot calculate the official COLA for 2025 until September inflation data is available. The U.S. Bureau of Labor Statistics will publish that information on Thursday, Oct. 10, at 8:30 AM ET.

Social Security benefits are forecasted to increase 2.6% to 3.1% in 2025

Several third-parties have made forecasts regarding the 2025 COLA. The Senior Citizens League (TSCL), a nonprofit senior advocacy group, expects benefits to increase 2.6% next year. The chart below shows how that would impact the average payout for different types of beneficiaries.

Data source: Social Security Administration. The average benefit before the COLA is based on payments in August 2024.

The Congressional Budget Office (CBO) is a nonpartisan agency that supports the Congressional budget process with independent analysis of budgetary and economic issues. The CBO has issued a slightly higher COLA forecast than TSCL, estimating benefits will increase 3.1% next year. The chart below shows how that would impact the average payout for different types of beneficiaries.

Data source: Social Security Administration. The average benefit before the COLA is based on payments in August 2024.

The forecasts I've discussed are subject to change based on how inflation trends through September. But estimates provided by TSCL and CBO imply the smallest COLA since 2021. That has positive and negative implications.

A smaller COLA indicates that inflation is trending downward, which means money will lose purchasing power less quickly. That is a good thing. By design, COLAs reimburse Social Security recipients for the buying power benefits lost in the prior year. That means beneficiaries are consistently behind the curve when pricies are rising.

Indeed, many Social Security recipients feel like they've fallen behind inflation. A study from TSCL suggests the purchasing power of Social Security benefits has declined 20% since 2010 because COLAs have failed to keep up with rising prices. In that sense, a smaller COLA is a bad news because it's unlikely to to make a big difference for individuals struggling to make ends meet.