More than 53 million Americans receive Social Security retirement benefits, as of the latest data, and millions more rely on Social Security survivors and disability benefits. While Social Security makes up a substantial portion of most beneficiaries' retirement income, it's the only inflation-protected source of income for many of them. After all, if you have a 401(k) or other retirement savings account, you don't get annual adjustments when inflation is high.
On the other hand, the Social Security Administration, or SSA, examines recent inflation data every year and, if warranted, applies a cost-of-living adjustment, or COLA. This helps the tens of millions of beneficiaries, as well as those who rely on Social Security survivor or disability benefits, to keep up with rising costs over time.
Social Security's COLA for 2024 was 3.2%, which followed a massive inflation-driven 8.7% adjustment in 2023 and a 5.9% boost in 2022. Here's when we'll find out what the 2025 COLA is and exactly how it will be determined.
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How the 2025 Social Security COLA will be determined
It's well-known that Social Security's COLA is inflation-based, but there's a specific way that the SSA determines what "inflation" is. The COLA is based on the CPI-W, or Consumer Price Index for Urban Wage Earners and Clerical Workers. It compares the increase in the average CPI-W for the third quarter with the same period in the prior year.
In other words, the SSA will look at the CPI-W data from July, August, and September 2024 and take an average of the three months. It will then be compared to the average from the third quarter of 2023.
Because the Social Security COLA is based on third-quarter inflation data, and the third quarter of 2024 hasn't happened yet, there's no way to know for sure what the COLA will be for 2025 Social Security payments. However, according to the latest Social Security Trustees Report, estimates for the 2025 COLA range from 2.4% to 3%. As of the latest data (March 2024), the CPI-W increased by 3.5% year over year.
It's also worth noting that the Social Security COLA will technically go into effect in December (so it's technically the 2024 COLA). However, since Social Security is paid one month in arrears, the first payment that reflects the COLA will be the one beneficiaries receive in January 2025.
When we'll find out what the 2025 COLA is
I wish I could tell you the exact date when the 2025 Social Security COLA will be revealed, but that's impossible. However, since the COLA is based on third-quarter inflation, it can't be revealed until finalized inflation data is available.
COLA notices will likely be available in December 2024 in your my Social Security account at SSA.gov. But we'll know what the COLA will be shortly after the end of the third quarter.
For reference, the 2024 COLA was announced on Oct. 12, 2023, less than two weeks after the third quarter ended. So the 2025 COLA will likely be revealed within the first couple of weeks of October 2024.
