An average cheque of $1,918.28 was sent to the more than 51.1 million retired workers who were recipients of Social Security in June. This amount is equivalent to a little more than $23,000 when calculated on an annual basis. Social Security is a program that most seniors rely on to pay at least some percentage of their expenditures, even though it is not likely to make its users very wealthy.
For the last 23 years, the national pollster Gallup has been conducting surveys with retirees to determine how much they rely on the most popular retirement program in the United States. During this period, between eighty per cent and ninety per cent of retirees have relied on their Social Security income in some manner to make ends meet. In 2024, eighty-eight per cent of respondents held this position.
It is impossible to overstate the significance of the Cost-Of-Living Adjustment (COLA) that is disclosed during the second week of October for those who are receiving Social Security benefits. Even though predictions of Cost-Of-Living Adjustment have fluctuated quite a little over the last half year, it is becoming more probable that a “raise” that will make history is for the next year.
An elderly individual with a grin on their face may be seen sitting on a sofa while clutching a fanned spread of several dollar notes.
2025 COLA Increase Projection Change
Because the prices of the products and services that we buy fluctuate over time, it is necessary for Social Security payments to similarly adapt to guarantee that recipients do not experience a decline in their ability to make purchases.
The mechanism that is responsible for ensuring that Social Security payments remain in line with the rate of inflation that is currently in effect is known as the Cost-Of-Living Adjustment. Since it is not intended to outrun inflation, which is something that may occur with a raise from an employer, you can think of it as an annual “raise” but with quotation marks since it is not planned to do so.
The Cost-of-Living Adjustments (COLAs) that Social Security implemented were entirely arbitrary and were decided by special sessions of Congress from the time that the first retired worker benefit cheque was sent out in January 1940 until 1974. With no Cost-Of-Living Adjustment s (COLAs) being passed forward during the 1940s, a total of eleven benefit changes were made during this period.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was adopted as the inflationary measure that was used to calculate the Cost-Of-Living Adjustment (COLA) for Social Security on an annual basis beginning in 1975.
Over half a dozen primary expenditure categories and a large number of subcategories are included in the Consumer Price Index for Women (CPI-W). Each of these subcategories has its percentage weighting within the CPI-W. The advantage of using these percentages is that they enable the Consumer Price Index for Women to be stated as a single number. This simplifies the process of comparing prices from one year to the next, which is necessary to ascertain whether prices are collectively increasing (inflation) or decreasing (deflation).
The final cost of living adjustment (COLA) computation takes into account only the trailing twelve-month numbers from the third quarter (July through September), even though the CPI-W is provided every month by the United States Bureau of Labor Statistics. Assuming that the average CPI-W reading from the third quarter of the current year is greater than the average CPI-W reading from the similar period in the previous year, it may be concluded that inflation has taken place, and those who are eligible for benefits are entitled to a “raise.”
If you are interested, the amount of the “raise” is equivalent to the percentage rise in the average CPI-W for the third quarter of the year compared to the previous year, rounded to the closest tenth of a per cent.
Overview of 2025 COLA Increase Projection Change
| Scheme | COLA Increase 2025 Projection |
| Governing Body | Government of USA |
| Recipients | Citizens of the USA |
| Applicable in | States of the US |
| Category | Finance |
| Official Website | https://www.ssa.gov/ |
Although there has been a change in the prediction for the Cost-Of-Living Adjustment in 2025, it is still on track to create history.
COLAs for Social Security have, for the most part, been lacklustre throughout the last two decades. The Cost-Of-Living Adjustment (COLA) has averaged 2.6% during the last 20 years. This figure takes into account three years in which there was no COLA passed down (2010, 2011, and 2016), as well as the year 2017 with the lowest positive COLA in the history of the world (0.3%).
On the other hand, the most recent three changes to the cost of living have subverted this tendency. The Cost-Of-Living Adjustment (COLAs) for Social Security came in at 5.9%, 8.7%, and 3.2% in 2022, 2023, and 2024, respectively. The Cost-Of-Living Adjustment of 8.7% in 2023 was the highest percentage rise in the last 41 years. To say that beneficiaries are hoping for a continuation of this trend of better-than-average Cost-Of-Living adjustments s is an understatement.
Over the last several months, there has been a significant shift in the projections for the Cost-Of-Living Adjustment (COLA) for Social Security in 2025. From where things started earlier this year, the nonpartisan senior advocacy organization The Senior Citizens League (TSCL) has seen its projection for the cost-of-living increase that Social Security will implement in 2025 almost double:
- TCL’s 2025 COLA estimate in January 2024: 1.4%
- February 2024: 1.75%
- April 2024: 2.6%
- May 2024: 2.66%
- June 2024: 2.57%
- July 2024: 2.63%
To put this into perspective, Mary Johnson, an independent Social Security and Medicare policy analyst who just resigned from TSCL, has lately seen her projection for the Cost-Of-Living Adjustment in 2025 significantly decrease:
- May 2024: 3.2%
- June 2024: 3%
- July 2024: 2.7%
Regardless matter whether the Cost-Of-Living Adjustment (COLA) for Social Security in 2025 came in at 2.6% or 2.7%, it would be a momentous occasion. The Cost-Of-Living Adjustment (COLA) for the program has not been at least 2.6% in four consecutive years during the last 28 years. If Johnson’s prediction turns out to be right, it would be the first time in the last 32 years that we have had four consecutive Cost of Living Adjustments of at least 2.7%!
According to these projections, the typical retired worker who is eligible for benefits may anticipate receiving an additional $50 to $52 per month by the year 2025.
On the other hand, workers with disabilities and survivor beneficiaries are on pace to have their monthly benefits grow by $40 to $42 and $39 to $41, respectively, shortly.
COLAs from Social Security are insufficient for retirees; Let’s know the details
There is a possibility that beneficiaries may get a Cost-Of-Living Adjustment (COLA) that is higher than the average for the fourth year in a row. Regrettably, these statistics conceal the fact that the Cost-of-Living Adjustments made by Social Security have not done a very good job of accurately evaluating the inflation that elderly citizens are experiencing.
TSCL published a study in May 2023 that compared the cumulative price change for a basket of goods and services consumed by the average retiree to the aggregate Cost-Of-Living Adjustment s (COLAs) that had been implemented from the beginning of the century (up to February 2023) forward.
The value of the basket of goods and services has climbed by 141.4% since the beginning of the century, even though the aggregate Cost-Of-Living Adjustment has raised benefits by a total of 78%. The last thing that happened was that the purchasing power of a dollar from Social Security decreased by 36%.
TSCL revised and refined its estimations of buying power during the previous week. According to the findings of its investigation, the current inflation rate has been higher than the Cost-Of-Living Adjustment (COLA) for Social Security in ten of the last fifteen years. During the year beginning in 2010, the total buying power of Social Security income decreased by twenty per cent.
It is a prevalent problem because the Consumer Price Index for Women does not keep track of the costs that are most important to senior citizens, and senior citizens (those aged 62 and more) make up 86% of Social Security recipients.
Under the guise of its full name, the Consumer Price Index for Workers (CPI-W) monitors the purchasing patterns of “urban wage earners and clerical workers.” Typically, they are people of working age in the United States who are not presently receiving a benefit from Social Security. Even more crucially, they are individuals who spend their money in a manner that is distinct from that of retirees.
The amount of a senior citizen’s monthly budget that is allocated to housing costs and medical care services is much greater than the percentage that is allocated to working-age Americans. These essential expenditures, on the other hand, are not being given the appropriate weighting inside the CPI-W.
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The two most significant costs for senior citizens, housing and medical care services, have trailing twelve-month inflation rates that are much higher than the 2.6% or 2.7% Social Security COLA anticipated for 2025. This makes the situation even more difficult for senior citizens living in the United States.
Regardless matter whether the COLA projection turns out to be more correct, pensioners are likely to face yet another year in which the purchasing power of their Social Security payments will decrease.
Calista Embry is a finance journalist who graduated from Johns Hopkins University. She has a passion for writing and researching the impact of finance on social life.