Social Security's Cost-of-Living Adjustment Will Be Revealed Soon—Here's What To Know
KEY TAKEAWAYS
- Social Security’s cost-of-living adjustment (COLA) for 2025 will be announced this month and will go into effect in January.
- The cost-of-living adjustments happen each year and are designed to ensure benefits align with inflation.
- The Senior Citizens League estimates Social Security benefits will increase by 2.5% in 2025.
Social Security’s cost-of-living adjustment (COLA) for 2025 will be announced this month—and it will affect more than 65 million Americans who receive benefits.
The Social Security Administration adjusts benefits based on the cost of living each year. The changes announced in October will go into effect in January and will likely increase benefits.
The Senior Citizens League (TSCL) estimates Social Security benefits will increase by 2.5% in 2025. Currently, retired workers get $1,920.48 a month on average. According to TSCL’s estimate, monthly payments will be raised by $48 monthly.
What Is The COLA?
The COLA is determined using a specific formula outlined in the Social Security Act to ensure benefits keep up with inflation.
This formula uses increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which the Bureau of Labor Statistics calculates monthly. The formula to adjust COLA uses the percentage increase in the CPI-W from the third quarter of one year to the third quarter of the next year.
Last year, benefits increased by 3.2%, providing beneficiaries an additional $50 per month.
When Is It Announced?
Because the COLA calculation uses third-quarter inflation numbers, it is often announced in the fall.
While the Social Security Administration says the announcement will happen sometime in October, reports have said the agency is likely to release the cost-of-living adjustment amounts on Oct. 10.
However, benefits will not change until the new year. Social Security benefits will be adjusted in December and paid to beneficiaries starting in January.
Why Does It Matter?
Cost-of-living adjustments are important for beneficiaries trying to keep up with inflation.
Inflation has ballooned since the pandemic, pushing prices up on essentials like food, clothing and housing. For many enrolled in Social Security, the benefits are already not enough to live on alone. Without COLA, the purchasing power of those benefits would erode.
Social Security benefits rose to a two-decade high in 2023, reflecting inflation that peaked in June 2022.
One criticism of the cost-of-living adjustments is that they are often behind the curve during bouts of high inflation since they are calculated based on the third quarter of the prior year. The Senior Citizens League estimates that the value of Social Security benefits has declined by 20% over the last 14 years.