In 2025, Social Security retirees are most likely going to get a raise. That's because cost of living adjustments (COLAs) are built into the benefits program. They have to be; otherwise, inflation would eat away at their benefits' value and leave them worth very little.
Unfortunately, while seniors will be happy to know that a raise is coming, those collecting benefits also need to prepare themselves for some bad news about their 2025 COLA, as it's almost inevitable that they are going to end up disappointed. Here's why.
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Retirees are likely to get less money than they expect in the 2025 COLA
Next year's Social Security raise is sure to disappoint seniors because all signs point to the fact that the benefits increase is going to be smaller next year than retirees have become accustomed to.
Now, we won't know the official cost of living adjustment numbers until October. That's because the calculation for the benefits formula is based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The first of these third-quarter numbers is going to be out on Aug. 14, so we'll have some more details then -- but the definitive answer won't come until the September numbers are released on Oct. 10, 2024.
Still, we do have CPI-W data from the first six months of the year, and we also have some projections about what the third-quarter data is going to look like for seniors. The news isn't good. The Senior Citizens League has estimated that benefits are going to increase by just 2.63% in 2025.
This is below the raise retirees have received for the last several years. In fact, here are the COLAs that have been applied over the past few years:
- January 2024: 3.2%.
- January 2023: 8.7%.
- January 2022: 5.9%.
This means that the 2025 COLA will be the lowest raise retirees have received since 2021. It's likely to surprise seniors when their checks don't go up nearly as much as they have been increasing.
Retirees need to realize benefits are losing buying power
Unfortunately, a lower-than-expected COLA is just the tip of the iceberg when it comes to the problems retirees are facing with their cost of living adjustments. The sad reality is that these COLAs haven't actually been keeping pace with rising prices experienced by retirees for a very long time despite the fact they're supposed to be designed to do so.
The problem is that the COLAs measure how prices are increasing on a basket of goods and services that reflect spending habits of urban wage earners and clerical workers -- not retirees who tend to spend more on things like healthcare and housing, which have regularly seen price surges that exceed inflation rates.
With COLAs not accurately measuring rising costs, benefits have lost 36% of buying power since 2000, according to the Senior Citizens League . Next year's smaller-than-anticipated COLA isn't going to fix this shortfall. Seniors who have been struggling to cover rising costs and hoping the 2025 raise would help may need to start looking into alternatives to afford their continued lifestyle, such as doing some part time work, or reworking their budget to cut expenses.
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