Social Security Increases in 2025: You’d Have to Lower Expectations a Bit

All Social Security retirees and beneficiaries are waiting every year for the announcement of the cost of living adjustment applied by the Social Security Administration (SSA) on all benefits and payments. This adjustment, popularly known as COLA, is based on a statistical average reflected by inflation.

The idea of the COLA adjustment is that beneficiaries of Social Security and other federal programs that also use it as a reference do not lose purchasing power in the face of price increases and the rising cost of living.

In 2023, the COLA had an impressive and exorbitant increase of 8.7%, one of the highest since the 80s. The following year, that is, in 2024, the increase was not so great but it was 3.2% and it could hardly cope with inflationary costs and the impact of this on retired people.

Well, it is based on the Consumer Price Index for Urban Workers and Clerical Workers (CPI-W), which is a measurement made by the Bureau of Labor Statistics (BLS) of the United States Department of Labor. This measurement is carried out every month and is published in order to track the increase in the fixed basket of goods and services consumed by urban and administrative workers throughout the country. The basket includes food, housing, transportation, medical care and clothing.

How Have Social Security Benefits Increased Over the Last 20 Years?

The COLA is prepared based on the percentage change of the CPI-W of the averaged of the third quarter of the year and is compared with the same period of the previous year. If there is an increase, a COLA of that increased percentage is applied the following year. If there is no increase, no change is applied.

The trend of the last two decades of gradual COLA increases averaged between 1.6% and 3.2%. However, there have been two years with significantly higher increases, such as 2008, when it reached 5.8% due to the great recession of the crisis that impacted the United States and the rest of the world, and 2023, when the COLA reached 8.7% due to the COVID-19 pandemic.

In 2011 there was also an increase of 3.8%, one of the highest in recent years, and in 2013 just 1.5%, which was one of the lowest in two decades.

Projections of Social Security COLA Increases for 2025: Expect Few, Very Few…

The Senior Citizen League (TSCL), a non-profit retiree advocacy group, has just published its latest COLA growth forecast for 2025: they expect it to increase by 2.6%, which would be just a little above a projected inflation of 2.05% according to the OECD, and 2.3% according to the IMF. Let’s take these two numbers with tweezers because there is still a lack of data to give the definitive percentages.

Without a doubt, retirees will be disappointed by Social Security when their monthly payments increase by just 2.6%. With this small increase, a retired worker who receives an average of $1,916 today will receive $1,966, an increase of only $50. A spouse will go from $911 to $935, increasing their benefits by $24, and a surviving spouse will go from $1,504 to $1,543, a small increase of $39.

Those disabled workers who receive Social Security Disability Insurance (SSDI) will see their payments grow from $1,538 to $1,578, an increase of $40.

What Is the CPI-E That Measures the Cost of Living of Retirees?

The Consumer Price Index for Americans Age 62 and Older (CPI-E) is an economic indicator prepared by the Bureau of Labor Statistics (BLS), and specifically measures how the cost of living and its increases impact on retired people.

This indicator analyzes the monthly variation in the cost of living based on the basket of goods and services that reflects spending patterns of this population group. The increase in food, housing, transportation, health, clothing and others is followed. It differs from the CPI-W because it is specifically designed to analyze the increase in costs of the needs and consumption habits of older adults. In the case of the CPI-E, the most relevant costs for older adults, such as medical care and medications, are monitored with special attention.

Evolution of the CPI-E vs. CPI-W