Social Security’s Cost of Living Adjustment (COLA) Projections for 2025 Are in Match – Here’s How Much the Average Check Is Expected to Grow Next Year

More than 68 million Social Security beneficiaries look forward to no event more than the annual disclosure of the cost-of-living adjustment (COLA). This is because most retirees need their monthly Social Security check to cover their expenses to some extent.

For more than two decades, Gallup has conducted annual surveys that assess retirees’ reliance on Social Security as a source of income. This year, for example, 88% of retirees said it was their “main” or “minor” source of income, while only 11% said it was unnecessary. In other words, most Americans would likely struggle without the financial foundation that Social Security provides.

In just 11 days – October 10 is a magical date worth marking on your calendar – the 2025 Social Security COLA will be unveiled. Since many forecasts currently agree on the size of this COLA, we can now estimate how much the average is expected to grow check next year.

Social Security’s COLA program serves an important purpose

Before we dive into the details of how much Social Security benefits are expected to increase in 2025, it’s quite important to understand what the cost of living adjustment is intended to accomplish.

In a utopian world, the price we pay for goods and services would never change, and beneficiaries would not have to worry about their Social Security income losing purchasing power. However, in the real world, the price of almost everything we buy changes over time and is often higher. The purpose of Social Security’s COLA is to ensure that beneficiaries do not lose purchasing power over time.

From the first pensioner’s check mailed in January 1940 until December 1974, there was no established system for allocating COLAs. Rather arbitrary sessions of Congress have passed COLA from time to time. After no adjustments in the 1940s, a record 77% COLA was passed in 1950.

Beginning in 1975, the Consumer Price Index for Urban Wage and Office Workers (CPI-W) replaced the inflation rate used to calculate annual COLAs. The CPI-W takes into account the price change of over 200 goods and services, each of which has its own percentage weighting. These weights allow the CPI-W to be expressed as a single number each month and allow for easy month-to-month and year-to-year comparisons.

Even though the CPI-W is reported monthly, only the last 12 months of the third quarter (Q3), July through September, are included in Social Security’s COLA calculations. Put simply, if the average CPI-W reading in the third quarter of this year is higher than in the comparable period last year, prices have increased overall (i.e. inflation). When this happens, your benefits will increase the following year.

The story continues

The amount of this increase is simply the year-over-year percentage change in average third-quarter CPI-W readings, rounded to the nearest tenth of a percent.

Here’s how much your Social Security checks will increase in 2025

Projections for the 2025 Social Security cost-of-living adjustment started this year at opposite ends of the spectrum.

In January, the Senior Citizens League (TSCL), a nonpartisan senior advisory group based in Virginia, estimated that Social Security’s COLA for 2025 would be a disappointing 1.4%. However, after numerous updates, TSCL now forecasts a 2.5% cost of living adjustment in 2025.

On the other hand, independent Social Security and Medicare policy analyst Mary Johnson, who recently retired from TSCL, forecast a relatively solid COLA of 3.2% after the April inflation report. However, with each subsequent report, these estimates decrease and currently stand at 2.5% corresponding to TSCL in 2025.

While nothing is certain – the September inflation report is the final piece of the puzzle needed to finally calculate Social Security’s 2025 COLA – both major forecasts agree on a 2.5% COLA for the coming year.

But percentages only tell part of the story. Assuming TSCL and Johnson’s predictions turn out to be accurate, let’s take a closer look at how much the average Social Security check is expected to increase in 2025. For this exercise, I’ll use average payouts for the month of August.

Data from the Social Security Administration show that the average benefit paid to more than 68 million recipients in August was $1,783.55. A 2.5% COLA would cause the average check to increase by $44.59 per month next year.

However, this increase can vary greatly depending on type beneficiary:

• The average retired worker can expect his or her monthly check to increase by $48.01 to $1,968.49 with a 2.5% cost-of-living adjustment in 2025.

• For workers with disabilities, a 2.5% COLA would increase the average monthly benefit by $38.50 per month to $1,578.42.

• Survivor beneficiaries should see their average monthly payout increase by $37.73 to $1,547.09 with a 2.5% COLA.

While this would mark the lowest COLA on a percentage basis since 2021, it is still higher than the average COLA of 2.3% over the past 15 years.

Social Security COLA doesn’t cut it for most retirees

Although grantees are on track to receive another (on paper) decent COLA after nearly a decade of disappointment – no COLAs were passed in 2010, 2011, and 2016 due to deflation, and the smallest positive COLA on record was issued in 2017. (0.3%) – The reality for most retirees is that Social Security COLAs do not reduce this amount compared to the inflationary pressures they face.

Shelter and medical costs have increased 5.2% and 3.2%, respectively, over the past year, according to the August inflation report. Both of these expenses matter considerably more for seniors than the typical working American and growing at a much faster rate than the estimated 2025 COLA.

Because CPI-W focuses on the spending habits of “urban wage and office workers,” who are often working-age Americans not currently receiving Social Security benefits, the stage at which Social Security benefits are most likely to lose purchasing power.

In mid-July, TSCL released an analysis showing that the purchasing power of the Social Security dollar has declined by 20% since the beginning of 2010. Moreover, the prevailing rate of inflation in a given year has occurred in 10 of the last 15 years.

To make matters worse, the Part B Medicare premium is expected to experience another sharp increase in 2025. Part B is the section of Medicare responsible for outpatient services.

According to the Medicare Trustees Report, the Part B premium is projected to increase 5.9% in 2025 to $185 per month, matching the 5.9% increase implemented this year. For most retired workers age 65 and older (the eligible age to enroll in Medicare), Part B premiums are automatically withheld from your monthly Social Security check.

If Part B increases to more than double the COLA for 2025, it is quite certain that most retirees will see at least some cost of living adjustment.

YesSocial Security benefits are scheduled to increase in 2025, but the costs to retirees will still be far greater than any reward.

$22924 The Social Security bonus that most retirees completely overlook

If you’re like most Americans, you’re several years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” can help ensure your retirement income grows. For example: One simple trick can pay you as much as $22924 more… every year! Once you learn how to maximize your Social Security benefits, we believe you’ll be able to retire confidently with the peace of mind we’re all about. Just click here to learn more about these strategies.

See “ZUS secrets” »

The Motley Fool has a disclosure policy.

Social Security’s Cost of Living Adjustment (COLA) Forecasts for 2025 Are in Line – Here’s How Much the Average Check Is Expected to Grow Next Year Originally published on The Motley Fool