Social Security beneficiaries will see a lower cost-of-living adjustment (COLA) for 2025, as the Social Security Administration (SSA) released this morning a finalized adjustment of 2.5% following cooled inflation in the third quarter of 2024.
On average, Social Security retirement benefits for 72.5 million Americans will increase by about $50 per month starting in January.
“Social Security benefits and SSI payments will increase in 2025, helping tens of millions of people keep up with expenses even as inflation has started to cool,” said Martin O’Malley, commissioner of Social Security.
Nearly 68 million Social Security beneficiaries will see a 2.5% COLA beginning in January 2025. Increased payments to nearly 7.5 million people receiving Supplemental Security Income (SSI) will begin on December 31, 2024.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) is slated to increase to $176,100 from $168,600.
The news follows the latest CPI-W numbers from the Bureau of Labor Statistics (BLS) this morning at 2.2%, after hovering near or above 3% for most of the year.
Retirees pessimistic amid higher living costs
This year’s COLA is smaller than in recent years, compared to 2024’s moderate 3.2% and 2022’s high of 8.7%. Over the last decade, the Social Security COLA has averaged at about 2.6%.
Americans say they’re experiencing the effects of the dwindling adjustment. A report from the AARP found that only 16% of Americans ages 50 and over agree that “a cost-of-living adjustment of less than 3% for Social Security recipients is enough to keep up with rising prices.”
“Inflation took a financial toll this past year, particularly on retirees, who often rely on Social Security as a key source of income,” said AARP’s CEO Jo Ann Jenkins, in a statement. “Even with this adjustment, we know many older Americans who rely on Social Security may find it hard to pay their bills. Social Security is the primary source of income for 40% of older Americans.”
Independent Social Security and Medicare policy analyst Mary Johnson, who releases her own COLA predictions and analyses each month, reiterated the frustrated sentiment among retirees. Johnson, who is also retired, says the new adjustment is barely enough for retirees to buy a few days’ worth of groceries. “With average retiree benefits rising by about $48 per month, that’s only going to buy about 14 gallons of gasoline per month at today’s prices, or maybe enough groceries for one to last two or three days,” said Johnson.
Shannon Benton, executive director with The Senior Citizens League (TSCL), added that the adjustment hasn’t kept pace with real increases in day-to-day living costs, leaving retirees calling on policymakers for change while struggling to maintain a standard of living. A recent TSCL survey of more than 3,000 older Americans found that 72% said that changing the COLA calculation to an index that better reflects seniors’ changing costs should be a top priority for Congress. Additionally, 70% said they worry that persistently high inflation prices will cause them to raise their spending and risk depleting their retirement savings and other assets.
“Our research shows that 67 percent of seniors depend on Social Security for more than half their income and that 62 percent worry their retirement income won’t even cover essentials like groceries and medical bills,” said Benton. “Seniors are frustrated that the CPI-W fails to measure inflation as they experience it.”
• EDITOR’S NOTE: This article has been updated to reflect the finalized 2025 Social Security COLA. Last month’s article appears below.
The Social Security cost of living adjustment (COLA) is once again lower than last month’s analysis.
That’s according to Mary Johnson, retired Social Security and Medicare policy analyst, and the nonprofit senior citizens advocacy group The Seniors Citizen League (TSCL), who today each released their own COLA predictions based on the latest inflation figures announced this morning by the U.S. Bureau of Labor Statistics (BLS). For September, both Johnson and TSCL forecast a 2.5% figure. Despite being Johnson’s lowest prediction since 2021, a 2.5% COLA would be considered about average, she adds.
“The 2025 COLA will be the lowest received by Social Security beneficiaries since 2021, at the same time inflated prices persist on key essentials such as housing, meats, auto insurance, any type of service and repairs,” says Mary Johnson, an independent Social Security and Medicare policy analyst.
The likelihood that the final 2025 COLA figures could be higher than 2.5% is about 17%, while the chances that it could drop lower is 13%, Johnson further predicts.
Today’s figure is also TSCL’s lowest forecast in months, which uses a different methodology than Johnson. In the past few analyses, TSCL’s figures have hovered between a narrow 2.57% to 2.63% range.
“The TSCL Social Security cost of living adjustment model predicts that the COLA for 2025 will be 2.5%, based on a decline from 2.9% to 2.5% in consumer price data,” stated TSCL in their analysis. “A COLA of 2.5% would raise the average monthly benefit for retired workers of $1,920 by $48.”
The latest figures come as older Americans are spending more of their income on daily needs compared to just a year ago. In TSCL’s 2024 Retirement Survey, 65% of seniors reported monthly expenses of at least $2,000, up from 55% in 2023. Furthermore, a higher number of seniors are spending at least $4,000 or $6,000 per month compared to 2023, too, while fewer are able to get by on $1,000 or less, finds TSCL.
“Ensuring that seniors have enough to feed and house themselves with dignity is a major reason why we advocate for a minimum COLA of 3%,” says Shannon Benton, TSCL’s executive director. “TSCL research shows that approximately two-thirds of seniors rely on Social Security for more than half of their monthly income, and 28% depend on it entirely.”
A different analysis for Medicare
While Johnson estimates the 2.5% COLA could increase the average retiree benefit of $1,870 by about $46.80 (when rounded to nearest 10 cents), she notes that Social Security recipients won’t know the final number until Medicare Part B premiums for 2025 are announced.
Earlier this year, the Medicare Trustees estimated that the Part B premium would be $185 per month in 2025, an increase of $10.30 from $174.70 in 2024. The Part B premium, as well as any voluntary withholdings for taxes, are automatically deducted from the monthly benefit amount by the SSA.
Medicare Part B premiums and deductibles grew at twice the rate of the annual Social Security COLA over the past two decades, according to an analysis by Johnson. Using data from 2005 to 2024, Medicare Part B premiums increased by a total of 109.9 percentage points while Social Security COLAs totaled just 52.5 percentage points over the same period. The analysis found that Part B premiums increased on average by 5.5% per year, while COLAs averaged just 2.6%.
The reason for this difference is because Medicare costs are not included in the consumer price index currently used to calculate COLA figures, Johnson explains. However, she notes that other indexes used today, like the Consumer Price Index for the Elderly (CPI-E), could be a more appropriate tool to analyze Medicare premiums.
“Ironically that index, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), does not survey retired adults aged 62 and older, the very people the Social Security COLA is supposed to protect,” she adds.
Today’s analysis is the final one by both Johnson and TSCL before the Social Security Administration (SSA) releases its own official 2025 COLA announcement on October 10.
• EDITOR’S NOTE: This article has been updated to include the latest forecast released this morning by The Senior Citizens League.
Based on the latest inflation figures announced this morning by the U.S. Bureau of Labor Statistics, retired and now independent Social Security and Medicare policy analyst Mary Johnson has slightly lowered her forecast for the 2025 Social Security cost of living adjustment (COLA).
Johnson this morning put her prediction at a 2.6% COLA for 2025, which is down from 2.7% last month, 3% in June and 3.2% in May. She is long known as one of the foremost experts in tracking potential COLA increases.
The prospective 2.6% COLA for next year would be considered the average amount that COLAs have been over the past two decades and the lowest since 2021, Johnson noted in her brief. Inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W); the index used to calculate the COLA, is 2.9% higher than a year ago, and the index increased 0.1% for the month prior to seasonal adjustment.
The inflation numbers for July are especially important because the COLA is determined on the average rate of inflation in the third quarter (July, August, September) versus the average third quarter inflation a year ago.
As of Aug. 14, we are now 57 days away from the official 2025 Social Security COLA announcement, which will be revealed on Oct. 10, 2024. Today—Aug. 14, 2024—also marks the 89th anniversary of the Social Security Act of 1935, signed into law by then President Franklin Delano Roosevelt.
Nonprofit senior citizens advocacy group The Seniors Citizens League also released an update to its 2025 Social Security COLA forecast. “The 2025 COLA prediction is about 2.57%, down from 2.63% last month,” says Alex Moore, The Senior Citizens League’s (TSCL) statistician and managing partner at Blacksmith Professional Services.
TSCL’s forecast, which uses a different methodology than Johnson, has hovered only slightly since April, staying in a narrow 2.57% to 2.63% range.
• EDITOR’S NOTE: This article has been updated to include the latest forecast released this morning by The Senior Citizens League.
Johnson cautions against eliminating tax
Former President Donald Trump’s recent suggestion to eliminate the taxation of Social Security benefits is likely to be popular with many older voters, but Johnson noted it could have the unintended consequence of causing Social Security to go insolvent two years sooner than currently forecast—by 2033.
Under current law, the revenues from the taxation of Social Security benefits are earmarked for funding Social Security and Medicare benefits. Over the next 10 years Social Security Trustees estimate that the Social Security Trust Funds (retirement and disability) would receive about $939 billion in revenues paid by Social Security recipients and representing roughly 5% of total program funding from 2024 through 2033.
“Unless those revenues were replaced with other revenues, Social Security would become insolvent sooner than currently forecast,” Johnson said, adding that insolvency would cause all Social Security benefits to be reduced by more than 20% as benefits would be adjusted to the amount of revenues received by the program. “Vague political promises not to touch Social Security benefits are meaningless. Voters need to be shown where the money is coming from to pay our benefits.”
She stressed that fixing Social Security’s cash crunch without benefit cuts, while making the Social Security benefit taxation fairer and more reasonable for all is possible. “It can be done in such a way that’s fair for more working adults, while providing enough revenues to significantly reduce the taxation of Social Security benefits for most older and disabled taxpayers,” Johnson said.
She said that applying the Social Security payroll tax to all wages earned by workers would be enough to provide up to 75 years of solvency according to Social Security estimates. Wage earners who make more than the taxable maximum amount (currently $168,600) don’t pay Social Security taxes on earnings over the wage cap. In addition, Johnson said such a change can be structured to provide credit toward benefits for higher earners.
Johnson also pointed to the fact that while income tax brackets and the standard deduction are adjusted annually to keep up with inflation, Social Security income is treated very differently under the tax code.
“The income thresholds that subject Social Security benefits to taxation have never been adjusted since benefits first became taxable in 1984. In 1984 less than 10% of Social Security recipients were affected by the taxation of benefits. Today, more than half of Social Security households pay tax on a portion of their benefits,” Jonnson said.
Under current law when combined income is more than $25,000 (single filers) or $32,000 (couples filing jointly) up to 85% of benefits can be taxable. If those income thresholds were adjusted to today’s dollars, Johnson said the $25,000 level would be about $77,079 and the $32,000 level about $98,660.
“Adjusting the income thresholds to today’s dollars and then annually thereafter would provide greater tax fairness while allowing Social Security recipients to keep more of their benefits,” she said.
• EDITOR’S NOTE: This article has been updated to reflect the latest 2025 Social Security COLA forecasts. Last month’s article appears below.
It’s becoming more and more likely that Social Security beneficiaries are going to get a smaller cost-of-living adjustment in 2025 than they’ve been getting in recent years.
According to a pair of notable forecasts updated this morning based on the latest inflation data through June 2024, as the rate of inflation moderates, it’s looking like next year’s increase may not top 2.7%.
“The Social Security cost-of-living adjustment for 2025 could be 2.7% based on the latest inflation data through June 2024, as the rate of inflation moderates,” retired and now independent Social Security and Medicare policy analyst Mary Johnson said this morning. She is long known as one of the foremost experts in tracking potential COLA increases.
That 2.7% forecast is down from 3% in June and 3.2% in May—a stark contrast as her forecast had been rising through the first four months of the year. Her previous estimates have gone from 1.4% in January to 1.75% in February, then to 2.4% in March and 3.0% in April.
Johnson noted today that prices for categories of essential items such as food, shelter, electricity, hospital and outpatient medical services continue to outpace the overall rate of inflation. “Clearly persistently high prices for key essentials are causing distress for many older and disabled Social Security recipients,” Johnson said.
While moderating inflation means lower spending on certain categories of items, Johnson added that retired and disabled Social Security recipients spend about half of their household budget on shelter costs, which have grown by 5.4%.
TSCL COLA forecast rises slightly
Also today, nonprofit senior citizens advocacy group The Senior Citizens League updated its forecast for next year’s Social Security COLA—bringing it up marginally. “The 2025 COLA prediction is about 2.63%, up from 2.57% last month,” says Alex Moore, the Senior Citizens League’s Social Security and Medicare statistician and managing partner at Blacksmith Professional Services.
TSCL’s forecast, which uses a different methodology than Johnson, has hovered only slightly since April, staying in a narrow 2.57% to 2.63% range.
In its update today, TSCL noted that the rate of inflation, as measured by the Consumer Price Index used to calculate the Social Security cost-of-living adjustment (COLA), fell to 3.0% for June. Although easing inflation should relieve older consumers, TSCL said the rapidly increasing price of groceries the 2020s have seen thus far meant financial relief is still far away.
“From 2020 to 2023, the cost of the average grocery item with direct prices tracked by the CPI has risen by 24%. While eggs captured many headlines with a rise of 86%, many other key items, such as coffee, sugar, bread, and ham saw their cost increase by more than a third,” the TSCL release said.
In TSCL’s 2024 Senior Survey, which had more than 1,550 respondents from across the United States, 34% of retirees said they had visited a food pantry or applied for food stamps over the last 12 months. What’s more, 60% of respondents said food was the fastest-growing expense in their monthly budgets, which was more than double the next hardest-hit expense category, housing.
Based on today’s CPI data, average U.S. household spending is up $212 per month from a year ago and $470 from two years ago, but Americans’ average incomes have been outpacing inflation to offset those increases.
Official 2025 COLA announcement due in October
Both forecasts point to a significantly lower COLA than Social Security beneficiaries have received in the past 3 years as inflation spiked before beginning to moderate last year. In the past 5 years, the average COLA increase has been 4.14%, with a high of 8.7% in 2023 and a low of 1.3% in 2020 (SEE CHART).
The COLA is directly tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures inflation. Today’s release of June data showed the CPI-W increased 2.9% over the last 12 months, and the index was unchanged for the month prior to seasonal adjustment.
Starting in July, the CPI figures will actually begin to impact what the 2025 COLA ends up being. The official 2025 COLA will be calculated based on the average rate of inflation using the CPI-W during the third quarter (July, August, and September) of this year, which is compared against the third quarter from the prior year. That final official Social Security COLA raise for next year will be announced on Oct. 10, 2024.
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
