Next month is going to be a big one for retirees, as the Social Security Administration (SSA) will announce the upcoming cost-of-living adjustment (COLA) for 2025.
The announcement is currently slated for Oct. 10, though the adjustment won't take effect until January 2025. For those struggling with rising costs, the COLA can provide a much-needed boost in benefits.
While the exact COLA won't be known until next month, it can be helpful to see where previous adjustments have landed to get an idea of what to expect. But no matter where the 2025 COLA falls, there's some not-so-good news on the horizon for retirees.
Image source: Getty Images.
The average COLA: A snapshot in history
The Social Security program has existed since 1935, but COLAs were not introduced until the mid-1970s. Back then, the adjustments were much larger than they are now. Between 1975 and 1982, COLAs ranged from 5.9% to a whopping 14.3%.
Now, however, beneficiaries are lucky to see COLAs reach even half of those figures. January 2023 saw the highest adjustment in four decades at 8.7%, but it's rare to see COLAs higher than 2% to 3% anymore.
| Year | COLA |
|---|---|
| 2014 | 1.5% |
| 2015 | 1.7% |
| 2016 | 0% |
| 2017 | 0.3% |
| 2018 | 2% |
| 2019 | 2.8% |
| 2020 | 1.6% |
| 2021 | 1.3% |
| 2022 | 5.9% |
| 2023 | 8.7% |
| 2024 | 3.2% |
| Average | 2.6% |
Source: Social Security Administration.
Since 2014, the average COLA has landed at 2.6%. In some ways, it's a good thing that these adjustments are much lower than they were decades ago. The COLA is supposed to help benefits keep up with inflation, so lower COLAs often signal that inflation is slowing down.
However, inflation will still often take a larger toll than COLAs can manage. A whopping 69% of U.S. adults age 50 and older who say their financial situation has worsened over the past year cite rising household costs as the reason, according to a 2024 report from AARP. Also, nearly 40% say they're at least somewhat worried about affording basic expenses in the future.
The average retiree in 2024 collects roughly $1,900 per month in benefits, according to the SSA. The average 2.6% COLA would amount to a raise of just under $50 per month. While that can be helpful, it likely isn't enough to combat soaring inflation.
Benefits are losing buying power
If it feels like the annual COLAs aren't keeping up with surging costs, it's because they aren't -- and this isn't a recent trend.
A 2024 report from The Senior Citizens League revealed that Social Security has lost 20% of its purchasing power since 2010, and the average beneficiary would need an extra $370 per month just to maintain the same buying power they would have had 14 years ago.
Furthermore, while the COLA is designed to help benefits keep up with inflation, it historically hasn't done a great job of accomplishing that. In eight of the last 15 years, the inflation rate has surpassed the COLA for each of those eight years, the report from The Senior Citizens League found.
Inflation can disproportionately affect seniors surviving on a fixed income. The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. This index measures the differences in prices from month to month, but it focuses on workers, not retirees.
Because seniors tend to be more affected by the costs of necessities like housing and food (expenses that have shot up exponentially in recent years), the COLA often underrepresents how severely inflation is impacting older adults. As inflation remains high, even higher-than-average adjustments only go so far in helping seniors keep up with rising costs.
Many seniors are eagerly awaiting the COLA announcement next month, and a boost in benefits can help make retirement a bit more affordable. But by keeping realistic expectations about how far this raise will go, it will be easier to determine how much you can actually rely on Social Security.
