How much will Social Security rise in 2025? COLA predictions from experts

Pension experts have made their final predictions about what the cost of living adjustment (COLA) will be ahead of next week's official announcement.

The Social Security COLA is designed to help benefits keep pace with inflation so purchasing power doesn't decline over time. It is calculated using the Consumer Price Index, which measures inflation and is determined each October by the Bureau of Labor Statistics. The announcement will take place on October 10th.

The recent COLAs were among the highest ever, including a whopping 8.7 percent increase in benefits paid in 2023 due to sky-high inflation caused by the coronavirus pandemic. The COLA increased benefits by 3.2 percent this year.

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But pensioners don't expect such a significant increase this time. Many experts have made indirect predictions of 2.5 percent for benefits awarded in 2025, including Social Security and Medicare independent policy analyst Mary Johnson. She said a beneficiary who receives $1,870 per month from the Social Security Administration (SSA) could see their monthly payment increase by about $46.80 next year.

““The 2025 COLA will be the lowest that Social Security recipients have received since 2021, while at the same time inflated prices for key essential items such as housing, meat, car insurance, every type of service and repairs continue,” Johnson said in a statement Newsweek. “Although it is the lowest COLA since 2021, a 2.5 percent COLA would be considered about average.”

Krisstin Petersmarck, founder and CEO of New Horizon Retirement Solutions, agrees with the 2.5 percent figure. “This appears to be consistent with the Fed's recent 50 basis point rate cut and the 20-year average COLA adjustment of 2.6 percent,” she said Newsweek.

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Burt Williamson, pension specialist at PlanPrep, has predicted a higher increase of 3 percent – or possibly even more.

“I believe they will increase Social Security benefits by no less than 3 percent this year,” he said Newsweektaking into account that “highly fluctuating energy costs are the main factor keeping inflation low”. Expect these costs to increase during the winter months, which would drive up the cost of living for seniors.

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“Anything below 3 percent will have a negative impact on the mood of most seniors, who will continue to struggle with much higher costs for everything, which has risen sharply in recent years.”

The effect

While a lower COLA directly correlates with lower inflation, seniors may not know whether the increase will have a real impact on their finances until it goes into effect later this year.

“We won't know whether it will be a good or bad COLA until January 2026, then we will know what inflation was for all of 2025,” said Robert Brokamp, ​​senior fixed income advisor at The Motley Fool Newsweek. “In a period of flat to declining inflation rates like we have seen in recent months, a 2.5 percent increase in Social Security benefits could look pretty good if inflation is lower in 2025.”

Benefit Bay CEO Brandy Burch said Newsweek that this year's increase may be ineffective when compared to health, housing and utility costs, all of which are rising above the CPI-W level. According to the Consumer Price Index for All Urban Consumers (CPI-U), housing costs have increased 5.2 percent in the year since August 2023 – more than double the projected COLA increase. Medical costs rose 3.2 percent over the same period.

Burch said increases in benefits are certainly welcome, but 2.5 percent “may not quite keep up” with “things that tend to eat up a significant portion of a retiree's budget.”

“Pensioners are still feeling the strain of persistently high prices. While this is a positive development in terms of additional income, it may not be enough to cover the rising cost of living that impacts their daily expenses.”

How exactly is the COLA calculated?

The COLA is based on the average consumer price index for urban wage earners and office workers (CPI-W) in the third quarter of the current year and the average CPI-W in the same period last year. If there is an increase, this percentage will be rounded to the nearest tenth of 1 percent to produce the new COLA.

The change applies to the following benefits provided by the Social Security Administration:

• Retirement benefits, including spouses who are eligible for Social Security benefits based on their partner's income
• Survivor benefits
• Additional security income
• Social Security Disability Insurance

An announcement of the final rate will be made on October 10, with updated benefit amounts published beginning in December 2024.