We won't learn the official 2025 Social Security cost-of-living adjustment (COLA) until October, but the latest estimates put it somewhere around 2.57%. This is less than the 3.2% boost beneficiaries got this year and well under the 8.7% increase we saw in 2023.
A 2.57% increase would add about $49 to the $1,917 average Social Security check as of May 2024. It's not a lot, but it might be the biggest increase seniors can expect for years to come. Below, we'll look at why and what you can do to help stretch your checks as far as possible.
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Smaller COLAs might be on the horizon
Social Security COLAs are based on changes to the average third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures the cost of a bundle of common goods and services. Its values move up slowly over time due to inflation, though in some years, it rises more quickly than in others.
2022 saw rampant inflation, so the difference between the 2022 and 2021 CPI-W third-quarter data was quite high -- 8.7%. That's why seniors saw such a large Social Security COLA that year. Inflation slowed throughout 2023, which is how we ended up with a smaller, but still above-average, COLA of 3.2% for 2024.
Inflation may not be slowing as quickly as everyone hoped, but it has still come down throughout 2024. That's why the 2025 COLA is expected to be even lower than this year's.
The Congressional Budget Office (CBO) expects this trend to continue. Its baseline projections through 2034 estimate that COLAs during this period will fall between 2.2% and 2.5%. Obviously, this could change if inflation picks back up. But if the current projections hold true, seniors shouldn't expect any large increases in their Social Security checks in the coming years.
What this means for seniors
This is disheartening for seniors, especially since data shows that Social Security has lost 36% of its buying power since 2000. Many blame this on the fact that the government uses the CPI-W to calculate COLAs, rather than the Consumer Price Index for the Elderly (CPI-E), which many say better reflects senior spending habits. Switching to this index would result in larger COLAs in most years, according to the Senior Citizens League.
But as this change seems unlikely to happen in the near future, it's on seniors to figure out how to help their Social Security checks go as far as possible. Budgeting well and relying upon personal savings if you have some helps a lot. Some may also choose to work at least part time in retirement to give themselves access to a steady income.
Those who haven't signed up for benefits yet should try to time their Social Security claim based on their financial situation and life expectancy. Those already claiming may consider suspending Social Security benefits at their full retirement age (FRA) if they can afford to do so. This temporarily pauses your benefits, but it also grows your checks by 2/3 of 1% per month. That continues until you request that benefits start again or you qualify for your maximum benefit at 70.
There aren't any easy answers here, so we just have to take it one step at a time. When the government announces the 2025 COLA in October, then you'll be able to estimate what your benefit will look like next year and begin crafting a plan for how to make the most of it.
