Social Security sets its 2025 COLA increase at 2.5%. Here’s how it will change your benefits.
The Social Security Administration set its 2025 cost-of-living adjustment at 2.5%, the smallest annual COLA hike since 2021. Although inflation has eased from its pandemic-era heights, some advocates for older Americans say the modest bump in Social Security benefits puts U.S. retirees at risk of losing financial ground.
The Social Security Administration announces its annual COLA each fall based on a metric known as the “Consumer Price Index for Urban Wage Earners and Clerical Workers,” or CPI-W, which tracks the average change in prices paid by certain workers for a given basket of goods, during the third quarter, or July through September.
Inflation has fallen sharply since hitting a 40-year peak in June 2022, but some senior citizens groups argue that Social Security’s annual COLA is failing to keep up with older Americans’ financial needs. That’s because the CPI-W tracks spending by workers, and so doesn’t accurately track retirees’ higher costs for health care, which has eroded seniors’ purchasing power, they say.
“A lot of seniors are going to say that this is not really enough to keep up with prices,” AARP Senior Vice President of Government Affairs Bill Sweeney told CBS MoneyWatch.
Silver lining
During the past three years, seniors received above-average cost-of-living adjustments as inflation hovered well above the Federal Reserve’s 2% annual target. But now, with inflation nearing the Fed’s goal, the latest annual COLA reflects the silver lining of cooling prices, according to AARP’s Sweeney.
“We got a good message mixed in with the bad. The reason the COLA is so low is because inflation is under control,” noted Kelly LaVigne, vice president of consumer insights at Allianz Life. “Here’s the hard part: Great, inflation is under control, but seniors don’t really feel like they got caught up.”
Meanwhile, the Social Security COLA could remain relatively low in future years, assuming inflation remains near the Fed’s goal, LaVigne added. And that has been the norm, with the COLA over the last 20 years averaging about 2.6%, according to the Senior Citizens League.
For 2024, Social Security recipients got a 3.2% COLA. In 2023, the annual adjustment reached 8.7% — a nearly 40-year high as inflation soared — while the 2022 COLA stood at 5.9%.
Social Security COLA impact
“The automatic annual cost-of-living adjustment is one of Social Security’s most essential and unique features. It is intended to ensure that benefits do not erode over time,” said Nancy Altman, president of Social Security Works, an advocacy group.
But, she added, the current formula fails to fully capture older Americans expenses. That could be fixed if the COLA was determined by another inflation measure known as the the Consumer Price Index for Elderly Consumers, or CPI-E, which reflects price changes based on the spending of people 62 and over.
Sherri Myers, an 82-year-old resident of Pensacola City, Florida, said the Social Security cost-of-living increase she’ll receive in January “won’t make a dent” in helping her meet her day-to-day expenses.
Even with the increase she’s looking for work to supplement her retirement income, which consists of a small pension and her Social Security benefits.
“Inflation has eaten up my savings,” she said. “I don’t have anything to fall back on — the cushion is gone.”
contributed to this report.
