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Social Security COLA on track for smaller increase in 2025

After years of higher increases tied to inflation, the 2025 cost-of-living adjustment is likely to come in lighter

Recipients of the federal Social Security benefits program are on track to receive a 2.5% cost-of-living adjustment (COLA) in 2025, a smaller increase than in recent years as the bite of inflation loosens its grip.

A forecast released last week by The Senior Citizens League (TSCL) arrived just ahead of an expected cut to benchmark interest rates by the Federal Reserve as economic data shows inflation beginning to come closer to the Fed’s target of 2% annually.

TSCL issues monthly Social Security COLA estimates based on recent economic data, but the official COLA will not be announced by the Social Security Administration (SSA) until October.

Still, despite the sharp reduction expected in this year’s COLA, the currently predicted increase of 2.5% is reasonably in line with the historic norm, TSCL said in its latest forecast.

“The COLA has averaged about 2.6% over the past 20 years,” the organization said. “It went as low as 0.0% in 2010, 2011, and 2016 and as high as 8.7% in 2023.”

But households are also paying more in overall costs due to inflation and other economic factors, illustrating the delicate nature of living on a fixed income.

“In TSCL’s 2024 Retirement Survey, 65% of seniors reported monthly expenses of at least $2,000, up from 55% in 2023,” the organization said. “Statistical testing shows that there’s almost no chance that this gap is due to noisy survey variation. (The 2024 survey had 2,129 respondents; 2023 had 2,258 respondents.)”

The data indicates that low-income seniors are more affected, but those in a higher income bracket are also posting higher spending levels relative to their income.

“Ensuring that seniors have enough to feed and house themselves with dignity is a major reason why we advocate for a minimum COLA of 3%,” TSCL executive director Shannon Benton said in a statement. “TSCL research shows that approximately two-thirds of seniors rely on Social Security for more than half of their monthly income, and 28% depend on it entirely.”

While last year’s COLA was larger, it still fell short of keeping pace with inflation, a key concern for older Americans reliant on the benefits to make ends meet. The overall increase of 3.2% heading into 2024 fell short of matching inflation seen in the U.S. economy last year.

The COLA headed into 2023 with a historical rise of 8.7%, which marked the highest COLA since 1981.

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