If you're a senior on Social Security who's hoping for a generous cost-of-living adjustment (COLA) in 2025, then your dreams may have recently been dashed. The nonpartisan Senior Citizens League recently put out a projection for next year's COLA, and so far, 2025's raise is looking to be considerably smaller than 2024's.
At the start of the current year, seniors on Social Security saw their monthly benefits increase 3.2%. Based on what we know so far, next year's COLA might only come in at 2.63%. And while that's certainly not the smallest Social Security COLA on record, it's considerably lower than the last three raises beneficiaries were granted.
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Remember, inflation began surging in 2021 as stimulus aid fueled an economic revival. In 2022, Social Security benefits got a 5.9% COLA, which was only a modest raise compared to the 8.7% COLA that arrived in 2023.
As it is, this year's Social Security COLA was a bit of a blow to seniors because it was such a smaller number compared to the two previous years. An even smaller raise arrive in 2025 could read like a seriously raw deal for retirees.
But actually, there's an upside to 2025's Social Security COLA projections. And seniors should take it to heart as they continue to pay attention to COLA updates.
Why a smaller 2025 COLA isn't the worst news
In the context of working, a smaller raise is generally considered to be less ideal than a larger one. But Social Security COLAs aren't raises in the traditional sense. Those COLAs aren't based on performance, as is the case with on-the-job raises, and they're actually not designed to help seniors get ahead financially.
Rather, the purpose of COLAs is to simply help Social Security recipients maintain their buying power as inflation drives the cost of living upward. Put another way, COLAs aren't mean to improve quality of life from one year to the next. They're merely a protective measure that's supposed to ensure that seniors can keep up with their expenses as costs rise around them.
With that in mind, it's important to recognize that a smaller Social Security COLA in 2025 is an indication that inflation is cooling. And so while retirees may not see their monthly benefits rise all that much in 2025, they may also not see their living costs climb substantially. At the end of the day, a slower increase in prices for things like groceries, gas, and utilities might do seniors more good financially than a more generous COLA.
Another thing seniors should realize is that the pace of inflation has already slowed down a bit compared to the start of the year. So it may be that this year's 3.2% COLA is doing a good job of helping Social Security recipients cover their current expenses without stress.
We'll have to sit tight until October
In the coming months, experts are likely to release additional projections on next year's Social Security COLA. But we won't have an accurate read on that number until October, so it's important not to get too hung up on any single estimate.
The 2.63% COLA projection noted above has the potential to rise. But it might also fall, so seniors need to keep their expectations in check.
However, a smaller 2025 Social Security COLA may not be the blow to retirees' finances they expect it to be. So while there's no sense in getting hung up on a single COLA projection, there's also no sense in taking a doom and gloom approach to a smaller raise in the coming year.
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