Millions of older adults depend on Social Security in retirement, but the program is facing some serious financial challenges. A whopping 87% of U.S. adults say they worry about the future of Social Security to some degree, according to a 2024 poll from Gallup, with 43% of that group admitting they worry "a great deal." With benefit cuts potentially looming, it's a fair concern.
For those relying on their benefits to make ends meet, the annual cost-of-living adjustment (COLA) is something to look forward to. The COLA is designed to help Social Security keep up with inflation, and as rising costs continue to take a bite out of retirees' budgets, any extra benefits can go a long way.
While the official COLA won't be announced until October, some experts are already making predictions for the 2025 adjustment. Here's how much the average retiree might expect to receive starting next year.
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COLA 2025: What retirees can expect
The COLA is based on third-quarter inflation data from the Bureau of Labor Statistics -- specifically, changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Social Security Administration averages the CPI-W values from July, August, and September. If the current year's value is higher than the previous year's, the difference will be the COLA for the following year.
We won't know the official COLA until October after September's inflation data is released by the Bureau of Labor Statistics. But analysts at The Senior Citizens League, a nonprofit advocacy group, make monthly COLA predictions, based on inflation data throughout the year.
According to the most recent estimate released in August, the expected COLA for 2025 is 2.57%. That's slightly lower than July's prediction of 2.63% and the actual 2024 COLA of 3.2%.
However, any extra money in benefits is still helpful for many people. The average benefit amount among retired workers is around $1,919 per month, according to July 2024 data from the Social Security Administration. If the 2025 COLA lands at 2.57%, that would add up to an extra $49 per month for the average retiree.
There's still bad news for retirees
The COLAs are inherently a good thing but gradually becoming less helpful over time as costs continue to rise. While the COLAs are supposed to keep up with inflation, benefits are still struggling to maintain buying power.
Since 2010 alone, Social Security benefits have lost 20% of their buying power, according to a 2024 report from The Senior Citizens League. The study also revealed that retirees would need an extra $370 per month to maintain the same buying power they would have had in 2010. By comparison, the extra $49 per month retirees could receive in 2025 seems dismal.
Then there's the separate issue of Social Security's trust funds running out. While the program isn't going away, once the trust funds are depleted, Social Security's remaining income sources will only be enough to cover around 83% of future benefits, according to a 2024 report from the Social Security Administration Board of Trustees. In other words, payments could be slashed by up to 17%.
Currently, the trust funds are expected to run out by 2035, assuming lawmakers don't find a solution before then. Between these potential cuts and Social Security's decreasing buying power, benefits aren't nearly as reliable as they once were.
How to prepare right now
For most people, the best thing you can do is to stay aware of the situation and keep your expectations in check. The annual COLAs can still go a long way if money is tight but aren't as surefire of a solution to rising costs as some people believe.
If you have other sources of income -- whether it's a retirement fund, a pension, or a passive income source , for example -- it can be wise to focus more heavily on them and less on Social Security. Benefits could continue losing buying power or face steeper cuts, and the more alternative income sources you have, the less Social Security's challenges will affect your finances.
Many retirees are eagerly anticipating the announcement of the 2025 COLA. While there's nothing wrong with relying on the boost in benefits, by keeping realistic expectations about how far it will go, you can better protect your retirement.
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