Personal Finance

Social Security 2025: How Next Years COLA Compares To the Past 5 Years 

Chris MacDonald

Published: October 1, 2024 8:33 am

Almost every essential good has risen across the board in recent years, and that has many seniors concerned. Indeed, if the annual cost of living adjustments (COLA) put forward by the SSA can’t or don’t match the real rising costs seniors face, that means less purchasing power for an economic group that arguably needs it the most, considering how fast healthcare expenses continue to rise across the country. 

Next year’s Social Security COLA is projected to come in at 2.5%, a move that will help retirees battle the rising cost of living. The question many retirees have is whether this 2.5% COLA increase is enough, and how this increase compares to previous increases. This article will dive into some historical trends, and try to understand where inflationary pressures could send next year’s increase, and how that stacks up to recent increases seen prior to and following the pandemic.

Unsurprisingly, given that cost of living adjustments are tied to inflation, this year’s number will come in a lot lower. Let’s dive into how much lower, and more into why that’s the case. 

Key Points About This Article:

• The upcoming cost of living adjustment (COLA) for 2025 could be among the smallest seniors have seen in recent years.
• Inflationary forces are coming down, which is great for consumers as a whole, but could impact how much seniors realize on their checks every month. 
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Historical COLA Increases (2019-2024)

Over the past five years, the Cost-of-Living Adjustments (COLA) for Social Security benefits have varied significantly, reflecting changes in inflation and economic conditions. Here’s a summary of the COLA increases from 2019 to 2024:

As mentioned, most analysts have pegged the upcoming 2025 COLA, which is slated to be announced October 10th, at 2.5% or thereabouts. This increase will be based on third quarter CPI data put forward by the Federal Reserve, which will also be used to adjust monetary policy according to the Fed’s dual mandate of supporting maximum employment and stable prices. 

Last year’s COLA increase of 3.2% came down considerably from the recent peak we’ve seen in increases in 2022, as higher inflation raised the cost of living for seniors considerably. Modest increases of between 1% and 2% became the norm following the Great Recession, where economic growth and inflation remained relatively muted, with this recent higher inflation and higher growth period being the exception. 

Expectations for the Upcoming COLA in 2025

Looking ahead to 2025, estimates for the COLA are currently around 2.5%, as adjusted by the Senior Citizens League based on recent Consumer Price Index (CPI) data. This estimate is subject to change as more data becomes available, particularly from July to September, which is crucial for determining the final COLA. That said, I don’t anticipate we’ll see a major divergence from these expectations. The market usually gets these things pretty close to correct, and the analysts coming up with these projections base their forecasts on a slew of data that are hard for the average person to compile.

As inflation continues to come down, forecasts are that upcoming cost of living adjustments could continue to decline in the coming years. Accordingly, the social security administration has come under fire from various advocacy groups for seniors, citing the rise in SSA checks don’t really fully cover the rising costs seniors face, as many of these costs are in the more inflationary healthcare services bucket, which is offset by other lower-inflation categories.

Implications for Retirees

Retirees can expect a modest increase in their Social Security benefits in 2025, but concerns remain regarding whether this adjustment will adequately cover rising living costs. With many seniors relying heavily on Social Security for their income, maintaining purchasing power through adequate COLAs is crucial for their financial stability.

It’s my view that this inflationary period we’ve all experienced has hurt everybody, but seniors clearly got the wrong end of the stick with many aspects of how these adjustments are based. I think a greater weighting should be placed on healthcare costs relative to the overall CPI basket which is used to determine these increases, but that’s just me.