Social Security's cost of living adjustment will be announced soon – here's what you should know

Social Security's 2025 cost of living adjustment (COLA) will be announced this month — and it will affect more than 65 million Americans who receive benefits.

The Social Security Administration adjusts benefits each year based on the cost of living. The changes announced in October will take effect in January and are likely to result in an increase in benefits.

The Senior Citizens League (TSCL) estimates that Social Security benefits will increase by 2.5% in 2025. Currently, retirees receive an average of $1,920.48 per month. TSCL estimates monthly payments will increase by $48 per month.

What is the COLA?

The COLA is determined using a special formula set forth in Social Security law to ensure that benefits keep pace with inflation.

This formula uses increases in the Consumer Price Index for Urban Wage Earners and Office Workers (CPI-W), which the Bureau of Labor Statistics calculates monthly. The COLA adjustment formula uses the percentage increase in CPI-W from the third quarter of one year to the third quarter of the next year.

Last year, benefits increased by 3.2%, giving recipients an additional $50 per month.

When will it be announced?

Because the COLA calculation uses third quarter inflation figures, it is often announced in the fall.

While the Social Security Administration says the announcement will come sometime in October, reports say the agency is expected to release cost-of-living adjustment amounts on October 10.

However, the benefits will not change until the new year. Social Security benefits will be adjusted in December and paid to beneficiaries starting in January.

Why is it important?

Cost of living adjustments are important for benefit recipients trying to keep up with inflation.

Inflation has risen sharply since the pandemic, driving up prices for essential goods such as food, clothing and housing. For many social security recipients, the benefits are no longer enough to live on alone. Without COLA, the purchasing power of these benefits would diminish.

Social Security benefits rose to their highest level in two decades in 2023, driven by inflation that peaked in June 2022.

One criticism of cost of living adjustments is that they often lag behind the curve during periods of high inflation because they are calculated based on the third quarter of the previous year. The Senior Citizens League estimates that the value of Social Security benefits has declined 20% over the past 14 years.