Among Social Security recipients aged 65 and older, 37% of men and 42% of women depend on their monthly benefits for 50% or more of their income. So it makes sense that many older Americans rely on the program’s annual cost-of-living adjustments (COLAs) to continue to make ends meet.

Key Insights from 24/7 Wall St.

• Social Security benefits are getting a 2.5% cost-of-living adjustment (COLA) in 2025.
• That COLA and future ones are likely to result in a loss of buying power for seniors.
• The hope is that lawmakers will consider an alternate way to calculate COLAs in the future.
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

Automatic Social Security COLAs were enacted in 1975 and immediately tied to annual increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But while you might think that system would work in theory, it’s been failing seniors in practice.

Your Benefits Aren’t Keeping Up, and There’s a Reason

In 2025, Social Security benefits are eligible for a 2.5% COLA. That happens to be the smallest raise to arrive since 2022. But the issue with Social Security COLAs goes beyond that.

Social Security recipients have lost 20% of their buying power since 2010, reports the nonpartisan Senior Citizens League. On average, seniors would need to see their monthly benefits increase by $370 to restore their buying power to 2010 levels.

If you’re wondering where the disconnect lies, it boils down to a flawed system of calculating COLAs. The CPI-W may be a reasonable broad measure of inflation, but it’s not specific to older Americans by any means. Rather, it calculates the costs commonly incurred by a specific portion of the population that doesn’t tend to be on Social Security — wage earners.

The fact that the CPI-W is specifically focused on urban wage earners is also problematic. More than 20% of older Americans live in rural areas, according to the U.S. Census. And there’s a reason seniors may be more apt to move to rural parts of the country. Not only can it be cheaper, but it can be quieter. And at a stage of life when proximity to jobs isn’t an issue, it makes sense that seniors would want to try to stretch their incomes further by heading to remote corners of the country.

But because of these factors, the CPI-W is not an accurate measure of the costs seniors on Social Security typically face. The Senior Citizens League says that between 2010 and 2024, Social Security COLAs increased benefits by 58%, averaging 3.9% per year during that period. During that same time frame, the cost of goods and services purchased by the typical Social Security beneficiary rose by 73%, averaging around 4.9% per year.

Given these numbers, it’s likely that future Social Security COLAs will continue to fail seniors in the absence of changes to the way they’re calculated. During the period of 2010 and 2024, Social Security recipients got some of their largest COLAs in history (specifically, a 5.9% boost in 2022 and an 8.7% increase in 2023). But those COLAs still weren’t enough to keep up with actual costs.

A Change Is Sorely Needed

Changing the way Social Security COLAs are calculated could help seniors recapture some of the buying power they’ve lost and help their financial outlook improve. But given that lawmakers have failed to make adjustments to those calculations for decades, it’s hard to determine whether an alternate means of calculating COLAs will become a priority in the near term — especially since lawmakers also face the daunting task of preventing Social Security cuts.

Unfortunately, this doesn’t leave seniors who are heavily reliant on Social Security in the best spot. But there’s hope for those who are still working to do what they can to build savings.

If you’re in that boat, reducing your future reliance on Social Security could land you in a much better place come retirement. If those benefits only account for a small portion of your overall income, then COLAs that don’t keep up with rising costs shouldn’t be as much of an issue.

To that end, fund your IRA or 401(k) to the best of your ability, and lean into stocks for strong returns during your wealth-building years. It could make a world of a difference, especially given the possibility that Social Security benefits could shrink overall.

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