The 2025 Social Security COLA: Each year, retirees eagerly anticipate the Social Security cost-of-living adjustment (COLA), and for 2025, the adjustment will be 2.5%. This change officially starts in December, with beneficiaries seeing the impact on their January payments.
For the average retired worker, this means an increase of about $48 per month, given that the average Social Security benefit is roughly $1,925. While any raise is welcomed, the 2.5% COLA comes with both positive and less-than-ideal news about what it means for future benefits.
The Positive Side of a Smaller COLA
While 2.5% is the smallest COLA since 2021, it’s important to consider why this might not be such a bad thing. The COLA directly mirrors inflation, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks changes in the cost of goods and services. If prices are rising, Social Security benefits increase to help retirees keep up with the higher costs of living.
However, the 2025 COLA is smaller than the much larger adjustments seen in recent years—like the 5.9% raise in 2022 and the 8.7% bump in 2023. These increases were a direct response to sky-high inflation, which many retirees found difficult to navigate. A smaller 2.5% COLA suggests that inflation is cooling down, which can be a relief for retirees. A slowdown in inflation could ultimately result in lower overall living costs, making the more modest COLA easier to bear than it might initially seem.
The Downside: Social Security’s Buying Power
While a 2.5% COLA signals a reduction in inflation, it also highlights a longstanding issue with Social Security benefits—they haven’t kept pace with the real cost of living over time. According to The Senior Citizens League, Social Security has lost about 20% of its purchasing power since 2010. Even though COLAs are meant to adjust benefits for inflation, they rarely align perfectly with the rising costs of goods and services.
Between 2017 and 2023, Social Security only kept pace with inflation in two years. This gap is particularly noticeable when you look at the actual inflation rates. For example, in 2022, inflation was 7%, but the 5.9% COLA that year didn’t quite keep up. Despite higher COLAs in recent years, retirees are still facing significant financial strain as their benefits don’t stretch as far as they used to.
What Can Retirees Do to Prepare?
While there’s not much retirees can do to control the COLA or inflation, there are steps you can take to help make your money last longer. If you have other savings or investments in addition to your Social Security benefits, it may be time to rely on them more heavily as benefits continue to lose purchasing power.
For some, picking up part-time work or finding additional sources of passive income could also provide a helpful buffer. The more you can reduce your reliance on Social Security alone, the better you’ll be able to safeguard your finances.
Finally, it’s always a good idea to stay informed about how far Social Security can realistically stretch. Understanding how COLAs work—and how they may change over time—can help you plan more effectively and protect your finances in the long run.
The Hidden Social Security Bonus You May Be Overlooking
If you’re like most Americans, you may be behind on your retirement savings. Fortunately, there are some little-known “Social Security secrets” that could boost your retirement income. For example, a simple strategy could potentially add up to $22,924 to your annual benefits. By learning how to maximize your Social Security, you could retire with more confidence and peace of mind, no matter what happens with COLAs or inflation in the future.