How benefits may change in 2025

Social Security beneficiaries will soon know the size of their annual cost-of-living adjustment for 2025.

They may be in for a disappointment because if current projections hold true, the increase to benefits could be the lowest since 2021.

The Social Security cost-of-living adjustment, or COLA, could be 2.5% next year, Mary Johnson, an independent Social Security and Medicare analyst, predicted last month.

With that change, the average retired workers’ benefit of $1,920 would rise by $48 per month, according to Johnson’s calculations.

The Social Security Administration is expected to announce the COLA for 2025 on Thursday.

In contrast, Social Security beneficiaries saw a 3.2% increase to benefits this year. In 2023 and 2022, beneficiaries saw the biggest boosts to benefits in four decades, with COLAs of 8.7% and 5.9%, respectively, in response to high inflation.

Even though the COLA for 2025 is expected to be smaller than previous years, many people are still feeling the residual pain of higher prices, said Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claiming software company. This means their current income may not be enough to cover the cost of everyday goods and services despite a slight increase in benefits.

“It’s not like prices came back down,” Elsasser said. “It’s just that the rate of increase has slowed, and so that probably contributes to people’s feeling that inflation hasn’t slowed.”

The Senior Citizens League, a nonpartisan senior group, has also projected a 2.5% COLA for 2025. Alicia Munnell, director of the Center for Retirement Research at Boston College, also recently wrote that the latest available data points to a 2.5% benefit increase next year.

Social Security COLAs have averaged about 2.6% over the past 20 years, according to the Senior Citizens League.

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The current 2.5% estimate has about a 17% chance of increasing and a 13% chance of decreasing, according to Johnson’s calculations from last month.

The official Social Security cost-of-living adjustment will factor in one more month of government inflation data when it is announced. That data, the consumer price index, will also be released on Thursday.

The Social Security COLA is calculated based a subset of the consumer price index known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

Third-quarter CPI-W data for last year is compared with the third quarter for the current year. The percentage increase from last year to this year determines the COLA.

While hurricanes can affect the calculations, Johnson said the effects of Hurricane Helene, which made landfall in the evening on Sept. 26, likely happened too late to be factored into September’s data.

“I don’t think that’s going to affect my forecast,” Johnson said.

Although gas prices were down last month, it may not be enough of a decline to affect the COLA calculation, she said.

Social Security beneficiaries will see the adjustment for 2025 starting with their January checks.

But beneficiaries can see how their benefits are affected by the annual adjustment earlier, either by checking their online My Social Security account or via a mailed paper statement from the agency in December.