In June, more than 51 million retired workers received an average Social Security check of $1,918.28, which works out to a little over $23,000 on an annualized basis. While Social Security benefits aren't going to make retirees rich, they've proved vital to helping our nation's aging workforce cover their expenses.
Over the last 23 years, Gallup has polled seniors to gauge their reliance on America's leading retirement program. Between 80% and 90% of retired respondents (88% in 2024) have stated that they lean on their Social Security income , in some capacity, to make ends meet.
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Arguably, nothing is more important for retirees than the annual reveal of Social Security's cost-of-living adjustment (COLA) and knowing how much they'll receive in the upcoming year.
Based on estimates, Social Security's 2025 COLA might make history and disappoint at the same time . Here are 10 things you need to know about this all-important upcoming announcement.
1. Social Security's COLA accounts for the effects of inflation
Before diving into any deep discussion, it's important to know what purpose Social Security's COLA holds.
Put simply, a COLA is the mechanism used by the Social Security Administration (SSA) to account for the effects of inflation (rising prices). Its purpose is to ensure that the purchasing power of Social Security income doesn't decline over time .
For example, if the collective price for a basket of goods and services regularly purchased by seniors rises, Social Security benefits should, in an ideal world, increase by a commensurate percentage to ensure that retirees can still buy those same goods and services.
2. Oct. 10 is the official reveal date
The SSA will officially announce the 2025 COLA at 8:30 a.m. ET on Thursday, Oct. 10, 2024.
The reason the COLA is always revealed in the second week of October (which I'll touch on momentarily) is that the final piece of the puzzle needed for this calculation is the September inflation report. The U.S. Bureau of Labor Statistics (BLS) typically releases prior-month inflation reports between the 10th and 15th day of a given month.
3. Only trailing-12-month CPI-W readings from the third quarter are used in the COLA calculation
Since 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has served as the annual inflationary tether for America's top retirement program.
Although the CPI-W is reported monthly by the BLS, only trailing-12-month readings from the third quarter (July through September) are used in the COLA calculation. If the average third-quarter CPI-W reading in the current year is higher than the comparable period in the previous year, inflation has occurred and program recipients are due a COLA in the upcoming year.
For those curious, the year-over-year percentage difference in average third-quarter CPI-W readings, rounded to the nearest tenth of a percent, equates to the coming year's COLA.
A historically high rate of inflation has led to three consecutive years of above-average COLAs. U.S. Inflation Rate data by YCharts .
4. The 2025 COLA has big shoes to fill
Social Security's COLAs have mostly been forgettable over the last 15 years. During this span, 10 COLAs have come in at 2% or lower, including three years (2010, 2011, 2016) when deflation (falling prices) occurred and no cost-of-living adjustment was passed along.
However, the last three COLAs have been impressive. For 2022, 2023, and 2024, beneficiaries enjoyed respective COLAs of 5.9%, 8.7%, and 3.2%, which are nicely above the two-decade average of 2.6%. The 8.7% COLA passed along in 2023 was the largest percentage increase in Social Security checks since 1982 .
5. Social Security's 2025 COLA might do something no one has seen in roughly 30 years
As of the June inflation report, forecasts suggest Social Security's 2025 COLA might make history.
The nonpartisan senior-focused advocacy group The Senior Citizens League (TSCL) expects the 2025 COLA to come in at 2.63%, which would round down to 2.6%. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson, who recently retired from TSCL, is forecasting a 2.7% COLA for 2025.
If Johnson is correct, it would mark the first time in 32 years that four consecutive COLAs have reached at least 2.7%. But even if TSCL's forecast proves more accurate, it's been 28 years since four straight COLAs came in at 2.6% or greater . Either way, history would be made.
6. Shelter expenses are the wildcard that'll determine whether history is made
Although the CPI-W has more than a half-dozen major spending categories and countless subcategories, its largest-weighted component, shelter, is the wildcard for Social Security's 2025 COLA .
The steepest rate-hiking cycle in four decades sent mortgage rates soaring in 2023 and effectively paralyzed the market for existing-home sales. Though mortgage rates have declined from their peak in October 2023, it's not yet clear whether it's too little, too late to impact stubbornly high shelter inflation. If the trailing-12-month shelter inflation rate remains above 5%, there's a good chance we'll witness COLA history.
7. Here's how much benefits would increase for the average beneficiary
What Social Security beneficiaries really care about is what these percentages will mean for them in dollar terms. Based on TSCL's and Johnson's estimates following the June inflation report, the average retired-worker beneficiary can expect their monthly payout to rise by approximately $50 to $52 next year .
By comparison, the average worker with disabilities and survivor beneficiaries would be looking at respective monthly benefit increases of roughly $40 to $42 and around $39 to $41 in 2025.
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8. Beneficiaries have been losing purchasing power since 2000
Now for the disappointing part: Social Security income has been losing purchasing power consistently since this century began .
Last year, TSCL released a study that compared aggregate COLAs between January 2000 and February 2023 to the collective price changes observed for a basket of goods and services regularly purchased by seniors over the same timeline. Whereas COLAs had increased benefits by 78% since the century began, the price for this basket of goods and services had risen by 141.4%!
A more recent report, released in July 2024, finds that Social Security benefits have lost 20% of their buying power since 2010. In other words, a 2.6% or 2.7% COLA isn't going to cut it for most retirees.
9. Medicare Part B is liable to eat up a sizable percentage of next year's COLA
To make matters worse, the Medicare Trustees Report, which was released in May, forecasted a 5.9% increase in Part B premiums to $185 per month for the upcoming year. Part B is the segment of Medicare that handles outpatient services.
Most seniors have their Part B premium automatically deducted from their monthly Social Security check. With Part B premiums expected to increase at more than twice the percentage of the forecasted 2025 COLA, there's a good chance most seniors won't enjoy the full impact of next year's cost-of-living adjustment.
10. The CPI-W is flawed, and there's no easy fix
Last but not least, you should know that Social Security's measure of inflation is inherently flawed .
As its full name implies, the CPI-W tracks the spending habits of "Urban Wage Earners and Clerical Workers." These are typically working-age Americans who aren't currently receiving a Social Security benefit, which is a problem, considering 86% of the program's recipients are aged 62 and above.
Seniors and working-age Americans spend their money differently. More specifically, seniors spend a higher percentage of their budget on shelter and medical care services than the typical working-age American. As a result, these important costs aren't being adequately reflected in the CPI-W, resulting in a persistent loss of purchasing power.
Though lawmakers from both parties recognize this deficiency in the CPI-W, a fix remains a long way off .
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