A moderation in inflation is expected to result in a modest 2.5% cost-of-living adjustment (COLA) for Social Security benefits in 2025, according to preliminary estimates. If accurate, this would mark the smallest COLA increase in three years, following a 3.2% adjustment in 2024.
How COLA Is Calculated
The estimate is derived from inflation data for July and August, with September’s Consumer Price Index (CPI) figures—set to be released on October 10, 2024—completing the picture. The Social Security Administration (SSA) bases COLA on third-quarter inflation metrics, comparing the current year’s data to that of the previous year. The official COLA figure will be announced by the SSA later in October.
In August, the CPI rose by 0.2% on a seasonally adjusted basis, maintaining the same increase as July. Year-over-year, the CPI recorded a 2.5% increase before seasonal adjustments, as reported by the U.S. Bureau of Labor Statistics.
Historical Context
While a 2.5% COLA might seem underwhelming compared to recent years, it aligns with historical averages, according to Social Security policy analyst Mary Johnson. For perspective:
- 2023: COLA increased by 8.7%, the highest since 1981.
- 2022: COLA stood at 5.9%.
- 2021: COLA was a modest 1.3%, one of the lowest since automatic adjustments began in 1975.
Read More: 2025 Social Security Updates: COLA, Earnings Caps, and Full Retirement Age Explained
Impact on Retirees
For the average retiree receiving $1,870 monthly, a 2.5% COLA would translate to an additional $46.75 per month, or $561 annually. However, the full benefit increase won’t reach beneficiaries’ pockets due to higher Medicare Part B premiums, which are automatically deducted from Social Security payments.
The Medicare Trustees project a monthly Part B premium of $185 in 2025, up from $174.70 in 2024. This increase could consume about $10 of the COLA hike each month.
What’s Next?
The final COLA percentage for 2025 will depend on September’s inflation data. Beneficiaries and analysts alike will watch closely for the SSA’s official announcement in October.
For more details on Social Security adjustments, visit the Social Security Administration website at SSA COLA Updates.
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