Breast cancer awareness month. Columbus Day. Fall foliage. Halloween. The World Series. Many things happen every October. But there's one event that retirees especially anticipate each year.
I'm referring to the annual cost-of-living adjustment (COLA) to Social Security benefits. Based on how the numbers are looking right now, your 2025 Social Security COLA will be lower than the 3.2% increase received this year.
However, the COLA calculation process may be much different after this year. Who's ready for a massive increase to your annual Social Security COLA? One proposed change might do the trick.
Image source: Getty Images.
Calculating your COLA
What is this big change that could be on the way? Before we get to the answer, it's important to understand how your annual Social Security COLA is calculated today.
COLAs are based on inflation. The more the prices of products and services you purchase regularly increase, the greater the adjustment to your Social Security benefits will be. If prices don't increase, you won't receive an adjustment. This is more common than you might think: There have been three years since 2009 when Social Security benefits weren't raised.
The Social Security Administration (SSA) doesn't use the inflation metric you see most often in the news -- the Consumer Price Index (CPI). Instead, the agency uses another index called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). As its name indicates, this metric tracks inflation for families who live in urban areas with at least half of their income from wages or clerical positions.
To calculate your annual Social Security COLA, SSA determines the percentage increase of the average CPI-W for the third quarter of the current year from the same period in the previous year. If there's an increase, it rounds the number to the nearest tenth of 1%.
Two lawmakers want to make a big change
U.S. Rep. Ruben Gallego, D-Ariz., and Sen. Bob Casey, D-Penn., want to change how the annual Social Security COLA is calculated. They recently introduced legislation in the U.S. House of Representatives and Senate to replace the CPI-W with another inflation metric -- the Consumer Price Index for the Elderly (CPI-E) -- if this number is higher than the CPI-W.
Why do these two lawmakers want to make this change? The CPI-W reflects price changes for workers, but most Social Security recipients don't work. Also, the CPI-E gives a higher weight to healthcare costs, which tend to be higher for older Americans.
The Senior Citizens League (TSCL), a nonpartisan group that advocates for seniors, crunched the numbers. The organization found that using the CPI-E would have resulted in a higher COLA in seven of the last 10 years.
| Year | COLA using CPI-W | COLA using CPI-E |
|---|---|---|
| 2024 | 3.2% | 4% |
| 2023 | 8.7% | 8% |
| 2022 | 5.9% | 4.8% |
| 2021 | 1.3% | 1.4% |
| 2020 | 1.6% | 1.9% |
| 2019 | 2.8% | 2.6% |
| 2018 | 2% | 2.1% |
| 2017 | 0.3% | 1.5% |
| 2016 | 0% | 0.6% |
| 2015 | 1.7% | 2% |
Data source: The Senior Citizens League. Table by author.
Receiving a 4% COLA this year would have added another $61 to the average monthly benefit for Social Security recipients. With Rep. Gallego's and Sen. Casey's proposed changes, your adjustment would never be lower than it is under the current method but would often be higher -- sometimes much higher.
Are higher annual Social Security COLAs on the way?
Now for a reality check: Any changes to Social Security are unlikely to be made in a presidential election year. There will likely be a lot of talk about Social Security but little action.
The proposed legislation would also increase Social Security's costs with the program's trust funds on track to run out of money by 2033. Including a change to the COLA calculation method would probably be more palatable if it were part of a broader reform that addressed Social Security's looming solvency issue.
Still, incorporating the CPI-E into the COLA calculation process makes sense. Perhaps some October will come when your annual increase will be much higher than it would have otherwise been. In the meantime, watch your spending closely. Your COLA for 2025 might not be as much as you'd like.
