The Social Security Administration (SSA) has released the first data point that will contribute to determining the cost-of-living adjustment (COLA) for 2025, indicating a potentially smaller increase in monthly benefits for the coming year.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) showed a 2.9 percent rise in July compared to the same month last year. The COLA calculation for Social Security benefits is based on the changes in this inflation metric throughout July, August, and September annually, with the conclusive figure expected to be declared in October.
For context, the COLA for 2024 resulted in a 3.2 percent increase in monthly benefits, driven by inflation rates from 2023. Alicia Munnell, director of the Center for Retirement Research at Boston College, predicts that ongoing decreases in inflation could lead to a COLA adjustment for 2025 to be between 2.6 percent and 2.9 percent.
“People are still not happy because prices are high,” Munnell notes, but adds, “I think we’re working our way out of this inflation situation and the harm that it did.”
Sri Reddy, senior vice president for retirement and income solutions at Principal Financial Group, shares a similarly positive outlook. “Inflation and core inflation have both appeared to come down and normalize in the first half of the year through June at about 3 percent,” Reddy states. “With the CPI results for July showing further decline, unless significant macroeconomic events arise, the Social Security COLA for next year should be projected between 2.75 percent and 3.25 percent.”
If the COLA aligns with the 2.9 percent figure reported for July, it would increase the average Social Security retirement benefit—which was approximately $1,870 a month as of June 2024—by an additional $54 per month starting in January 2025. Similarly, the average monthly survivor benefit, which stood at $1,508 in June, would rise by $44, and the average Social Security Disability Insurance (SSDI) payment of $1,538 would see an increase of $45.
The COLA adjustment implemented in 2024 already contributed $59 more for the average retiree. The annual adjustments have displayed a significant drop over the past year, closely following the easing of inflation. Notably, the 2023 COLA of 8.7 percent marked the highest increase since 1981, a consequence of steep consumer price hikes from the previous year.
“Social Security is generally the only inflation-protected source of income for seniors in retirement,” remarks David Certner, legislative counsel and legislative policy director for AARP. “Whether the cost of living rises significantly or by modest amounts, AARP has consistently advocated for protecting the COLA, ensuring that seniors can keep pace with rising prices throughout their retirement.”