Social Security’s cost-of-living adjustment (COLA) is a crucial aspect of retirement income for many Americans. While recent increases are historic, most retirees will still struggle to meet their needs. As of June, over 51 million retired workers received Social Security benefits, averaging $1,918.28 per month or just over $23,000 annually. This may not seem like much, but Social Security has been a lifeline for seniors, lifting 22.7 million people above the federal poverty line in 2022, including 16.5 million adults 65 and older.
Importance
Surveys by Gallup show that 80–90% of retirees rely on Social Security to cover living expenses. Therefore, the annual COLA announcement in October is eagerly awaited. However, despite projections of an unprecedented 2025 COLA, many seniors may still find themselves disappointed.
The Role of COLA
You’re probably aware that prices for goods and services change over time. Social Security’s COLA aims to track these price increases to ensure beneficiaries maintain their purchasing power. Before 1975, there was no regular pattern for these adjustments. Between 1940 and 1974, only 11 COLAs were approved by Congress.
In 1975, Social Security started using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to measure annual inflation trends. The CPI-W includes six major expenditure categories, each with its own weight. This allows the CPI-W to be reported as a single number each month, providing a clear comparison to previous months or years. Social Security’s COLA is based on the CPI-W from the third quarter (July through September) of each year. If the average CPI-W for this period is higher than the previous year, it indicates inflation, leading to an increase in Social Security benefits.
Impact on Payments
In the past 15 years, COLAs have varied widely. There were no COLAs in 2010, 2011, and 2016, and the smallest increase was in 2017. However, the most recent COLAs in 2022, 2023, and 2024 were significant, increasing benefits by 5.9%, 8.7%, and 3.2%, respectively. The 8.7% COLA in 2023 was the largest percentage increase in 41 years.
Projections
According to the Senior Citizens League, the 2025 COLA is projected to be around 2.63%. Independent analyst Mary Johnson estimates it to be 2.7%. Though these figures are lower than the past three years, they remain historically high. If these projections hold, beneficiaries could see a monthly increase from $49.88 to $51.79.
The table below shows the potential increases:
| Beneficiary Type | Current Monthly Payment | 2.6% COLA Increase | 2.7% COLA Increase |
|---|---|---|---|
| Retired Workers | $2,000 | $51.79 | $51.79 |
| Disabled Workers | $1,537 | $39.98 | $41.52 |
| Surviving Spouses | $1,451 | $39.20 | $40.71 |
This represents a notable increase in monthly income for beneficiaries, despite the overall low monthly payout.
Social Security’s COLA plays a vital role in helping retirees maintain their purchasing power in the face of inflation. While recent increases are historically significant, many retirees may still struggle to make ends meet. The 2025 COLA, though lower than recent years, is still expected to provide a modest boost to Social Security payments. For millions of Americans, every dollar counts in ensuring a more secure retirement.
FAQs
How much is the projected COLA for 2025?
Estimates suggest a 2.63% to 2.7% increase.
What was the COLA increase for 2023?
The COLA increase for 2023 was 8.7%.
When does Social Security use CPI-W for COLA?
The CPI-W from July through September.
How many retirees rely on Social Security?
Over 51 million retired workers rely on Social Security.
How does COLA impact monthly payments?
COLA adjusts payments based on inflation to maintain purchasing power.