How benefits could change in 2025

Social Security beneficiaries will soon know how big their annual cost-of-living adjustment will be for 2025.

They could be in for a disappointment because if current forecasts are correct, the increase in benefits could be the lowest since 2021.

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

That change would increase the average pension benefit of $1,920 by $48 per month, according to Johnson’s calculations.

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

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

Although the 2025 COLA is expected to be smaller than previous years, many people are still feeling the residual pain of higher prices, says Joe Elsasser, a certified financial planner and president of Covisum, a Social Security claiming software company. This means that 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 have fallen again,” Elsasser said. “It’s just that the rate of increase has slowed, and that probably contributes to people’s feeling that inflation hasn’t slowed.”

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

According to the Senior Citizens League, Social Security COLAs have averaged about 2.6% over the past two decades.

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According to Johnson’s calculations last month, the current estimate of 2.5% has about a 17% chance of rising and a 13% chance of falling.

The official Social Security cost-of-living adjustment will take into account another 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 on a subset of the consumer price index known as the Consumer Price Index for Urban Wage Earners and White-collar Workers, or CPI-W.

The CPI-W data for the third quarter of last year is compared with the third quarter of 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 on the evening of September 26, likely occurred too late to be included in the September data.

“I don’t think this will affect my prediction,” Johnson said.

Although gas prices fell last month, the decline may not be enough to affect the COLA calculation, she said.

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

But beneficiaries can see earlier how their benefits will be affected by the annual adjustment by checking their My Social Security Account online or through a paper statement from the agency in December.