For most retired Americans, a Social Security check isn't just another piece of paper. It represents a vital income source that an overwhelming majority of people age 62 and above would struggle to live without.
For the last 23 years, national pollster Gallup has been surveying retirees to gauge how much they rely on the income they receive from America's top retirement program. Consistently, between 80% and 90% of retirees lean on their monthly payout to cover at least some portion of their expenses. In Gallup's 2024 survey, only 11% of respondents noted that their Social Security income wasn't needed.
Nothing matters more to the 86% of Social Security beneficiaries who are age 62 and above than the annual cost-of-living adjustment (COLA) reveal, which is slated for Oct. 10.
Although Social Security's 2025 COLA is on track to make history, it also appears set to deliver a host of disappointments for seniors .
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What purpose does Social Security's COLA serve, and how is it calculated?
In a perfect world, the price for the goods and services we buy would remain static and we'd never have to worry about our wage, salary, or Social Security benefits failing to keep up with inflation (rising prices). But in the real world, the price we pay for all sorts of goods and services is dynamic. The purpose of Social Security's COLA is to ensure that benefits don't lose purchasing power over time.
Before 1975, cost-of-living adjustments were assigned without rhyme or reason by special sessions of Congress. Following the 1940s, when zero adjustments were made to benefits, Congress passed along 11 COLAs from 1950 through 1974 .
Beginning in 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) became the inflationary measure used by Social Security to calculate annual cost-of-living adjustments. The CPI-W has over a half-dozen major spending categories and a multitude of subcategories, all of which possess unique percentage weightings. These weightings are what allow the CPI-W to be whittled down to a single figure at the end of a month, which makes for quick and easy year-over-year comparisons to determine if prices are collectively rising or falling.
Although the CPI-W is reported monthly by the U.S. Bureau of Labor Statistics (BLS), only trailing-12-month readings from the third quarter (July through September) are used in the COLA calculation.
If the average CPI-W reading in the third quarter of the current year has risen from the comparable period in the previous year, inflation has taken place, and Social Security recipients are in line to see their benefits increase the following year. The amount of this increase is determined by the year-over-year percentage change in average third-quarter CPI-W readings, rounded to the nearest tenth of a percent.
An uptick in the U.S. inflation rate has led to three above-average COLAs in a row. US Inflation Rate data by YCharts .
Social Security's 2025 cost-of-living adjustment is poised to make history
As of right now, nothing is set in stone when it comes to Social Security's 2025 cost-of-living adjustment. With July in the books, we still have two months of inflation data to receive from the BLS before the official COLA will be locked in.
But as of the time of this writing, which is prior to the BLS release of the July inflation report, the 2025 COLA looks to be on track to make history.
Over the last 15 years, Social Security COLAs have been mostly forgettable, with two-thirds of the cost-of-living adjustments coming in at 2% or below. This includes three years with no COLA (2010, 2011, and 2016) -- there's no COLA when the deflation occurs and prices decline on a year-over-year basis -- and the smallest COLA on record (0.3% in 2017).
However, the previous three years have represented a nice break for beneficiaries. In 2022, 2023, and 2024, respective COLAs of 5.9%, 8.7%, and 3.2% were passed along. The 8.7% COLA in 2023 was the largest year-over-year percentage increase since 1982 , as well as the biggest year-over-year nominal-dollar boost for the average retired worker since Social Security's inception.
According to The Senior Citizens League (TSCL), a nonpartisan group advocating for seniors, the 2025 COLA is estimated to come in at 2.63%, which would round down to 2.6%. This is right on par with the two-decade average COLA of 2.6%, and it would mark the first time in 28 years that four consecutive COLAs have reached at least 2.6% .
Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson, who recently retired from TSCL, foresees the 2025 COLA coming in at a slightly more robust 2.7%. It's been 32 years since beneficiaries received a COLA of at least 2.7% in four straight years.
Regardless of whether TSCL's or Johnson's forecast proves the most accurate, both imply a history-making "raise" is on tap for beneficiaries in the upcoming year.
Image source: Getty Images.
A trio of disappointments likely await retirees
On a nominal-dollar basis, a fourth consecutive year of average or above-average COLAs probably sounds fantastic -- especially following so many years of subpar benefit increases. But when perspective is added as the key "ingredient" to Social Security's 2025 COLA, disappointment looks to be the end result for retirees.
The first (and obvious) issue is that beneficiaries are in line to receive their lowest COLA in four years. Even though it's been about three decades since COLAs were this high for four straight years, dropping down from an increase 8.7% to 3.2% on a year-over-year basis, then potentially dipping down to 2.6% or 2.7% the following year, is a bit of a gut punch to the proverbial pocketbook. For the average retired-worker beneficiary, a 2.6% or 2.7% COLA would increase monthly checks by only $50 to $52 next year .
The second disappointment for retirees comes in the form of a persistent loss of purchasing power .
Though the CPI-W has made it considerably easier to pass along annual COLAs since 1975, this is, ultimately, an inflationary index that tracks the spending habits of "urban wage earners and clerical workers." These are commonly working-age Americans who aren't currently receiving a Social Security benefit, and they, importantly, spend their money very differently than seniors .
Seniors spend a higher percentage of their monthly budget on shelter and medical care expenses than the average working-age American. Through June 2024, the unadjusted trailing-12-month inflation rate for shelter and medical care services was notably higher than TSCL's and Mary Johnson's respective 2025 COLA estimates.
TSCL has found that Social Security income has lost 20% of its purchasing power since 2010. A COLA of either 2.6% or 2.7% in 2025 is likely going to exacerbate this loss of buying power.
The third whammy for retirees is that Medicare Part B premiums -- Part B is the segment of Medicare that handles outpatient services -- are estimated to rise by 5.9% to $185 per month in 2025, according to the May-released Medicare Trustees Report. While this is just an estimate, there's a high likelihood that Part B premiums will, at minimum, double Social Security's 2025 COLA.
For a good number of retirees, many of whom are receiving Medicare and have their monthly benefit automatically deducted from their Social Security check, it means most, or all, of their 2025 COLA could be gobbled up by higher Part B premiums.
Even if Social Security's 2025 cost-of-living adjustment makes history, retirees are slated for the short end of the stick, once again .
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