Every year, the Social Security Administration releases an annual report from its board of trustees, informally known as the Social Security Trustees Report. This includes tons of valuable information about the state of the program (2024's report is 277 pages long), such as how much money flowed into and out of Social Security in the previous year, the long-term financial health of the program, and much more.
One particularly interesting item, especially for current retirees and those soon to be included in that group, are estimates on the future cost-of-living adjustments, or COLAs, given to Social Security beneficiaries. And while there have been plenty of estimates regarding the COLA that will be given to beneficiaries next year, the estimates in the Social Security Trustees Report predict the COLA all the way out through 2033.
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How the Social Security trustees make their projections
When formulating any future projections, the Social Security trustees use three different scenarios, which it refers to as the intermediate, low-cost, and high-cost sets of assumptions.
In simple terms, the low-cost scenario is the most optimistic case for Social Security's future, while the high-cost scenario is the most pessimistic.
The low-cost scenario assumes generally higher birth rates (more people paying into Social Security in the future), slower growth in life expectancies, higher wage growth, higher real interest rates, and as a result of all this, generally higher long-term inflation rates.
On the other hand, the high-cost scenario assumes the opposite -- lower birth rates, longer average life expectancies, slower wage growth. In a nutshell, the high-cost estimate assumes that Social Security will need more money in the future to ensure its viability, while the low-cost estimate assumes that more money will be flowing into the program, so there will be less of a financial crunch.
The intermediate assumption is in the middle and is considered the most likely scenario.
To be clear, the high-cost and low-cost assumptions are designed to be extreme, but possible scenarios, and therefore aren't very likely. For example, the intermediate assumptions find that Social Security's reserves will be depleted in 2035, while the low-cost assumptions would mean the reserves would last until 2080, an extra 45 years.
Social Security COLA predictions through 2033
According to the 2024 Social Security Trustees Report, the intermediate case calls for a 2.6% COLA for this year (the increase that will start with January 2025 payments). It is expected to fall to 2.2% the following year and average 2.4% from 2026 through 2033.
Of course, this is just based on the intermediate assumptions. Here's a look at how the Social Security trustees see COLAs over the next several years in each set of assumptions:
|
Year |
Intermediate Case COLA |
Low-Cost Case COLA |
High-Cost Case COLA |
|---|---|---|---|
|
2024 |
2.6% |
2.7% |
2.5% |
|
2025 |
2.2% |
3% |
1.8% |
|
2026-2033 (each year) |
2.4% |
3% |
1.8% |
Data source: 2024 Social Security Trustees Report.
Keep in mind that the 2024 COLA will go into effect with the payments beneficiaries receive in Jan. 2025. The 2025 COLA will be reflected in benefits starting Jan. 2026, and so on.
The bottom line
It's worth emphasizing that nobody has a crystal ball that can tell us exactly what the Social Security COLA will be next year – much less over the next decade. But these are the best actuarial estimates we have that are based on realistic combinations of economic and social conditions. Of course, the COLA will almost certainly vary from year to year, so these are best thought of as projected long-term averages.
