Every year, Social Security benefits are eligible for a cost-of-living adjustment, or COLA. The purpose of COLAs is to make it possible for seniors on Social Security to maintain their buying power as inflation drives the cost of living up over time.
Because Social Security COLAs are based on third-quarter inflation data, it's too soon to put out an official number for 2025. That can't happen until Oct. 10.
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Based on inflation readings to date, it's possible to come up with an estimate of next year's Social Security COLA. As of mid-September, that estimate is 2.5%, per the Senior Citizens League.
At first, that might seem like bad news. Not only is a 2.5% COLA smaller than previous COLA estimates , but it's also quite a bit lower than the 3.2% raise seniors on Social Security received at the start of 2024.
But the latest 2025 Social Security COLA estimate isn't all negative. Here are two reasons why it's surprisingly positive news.
1. It's a sign of cooling inflation
Social Security COLAs aren't based on future inflation readings -- they're based on previous inflation readings. For example, 2025's Social Security COLA is based on inflation data from July, August, and September of 2024. It's not based on what economists think inflation will be in 2025.
Because those COLAs are pegged to inflation readings, there's a clear relationship between smaller Social Security raises and cooling prices. While you may have been hoping for a larger COLA in 2025, recognize that a smaller one means that living costs aren't rising as quickly as they once were.
Put another way, although your monthly Social Security benefits may not increase as much as you would've liked in 2025, you might also find yourself spending less money on things like groceries, gas, clothing, utilities, and other essential expenses. What you lose in one regard, you gain in another. And you might actually come out ahead financially with a smaller Social Security COLA if the rate of inflation continues to decline in the new year.
2. You still have an opportunity to make the most of this year's COLA
As we just discussed, the reason 2025's Social Security COLA estimate is coming in at 2.5% is due to slowing inflation. But that gives you a prime opportunity to potentially bank some savings between now and the end of the year.
Because inflation is lower at this point of the year than it was at the start, you may not need to spend your entire Social Security check each month. This gives you a chance to save some of that money for 2025, when you might need it due to a smaller COLA. And now that you know that next year's COLA may not be as generous as you would've hoped, you can take action and make savvy spending decisions in the coming months.
An official announcement is coming soon
The Social Security Administration won't release an official 2025 COLA announcement until Oct. 10, but it's fair to say that the current 2.5% estimate is reasonably accurate. Although it might change a bit in the next few weeks, the final number is unlikely to be far off from where it is today.
Even if 2025's Social Security COLA ends up at or just below 2.5%, that's not necessarily terrible news. All retirees should do their best to see the silver lining.
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