The 2025 Social Security Cost-of-Living Adjustment (COLA) is almost official. Here’s how much retirement benefits could rise next year

The Bureau of Labor Statistics (BLS) just released the second of three data points that determine how much more retirees will receive in Social Security retirement benefits next year.

Social Security’s annual cost-of-living adjustment, or COLA, is a key component of the program. Many retirees rely on the annual benefit increase to make ends meet and keep up with the rising costs of daily living. Last year, Social Security increased benefits by 3.2 percent.

Seniors may be disappointed to learn that this year’s COLA is on track to be slightly lower than last year’s. The Social Security Administration uses the year-over-year change in average inflation during the third quarter to determine next year’s adjustment. In the first two months of the quarter, average inflation rose just 2.6%. But September’s year-over-year increase could fall below that number, making the 2025 COLA even lower.

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The details of the Social Security COLA 2025

As noted, each year’s COLA is determined by measuring the average increase in inflation in Q3. The Social Security Administration specifically uses a measure called CPI-W, which measures the increased cost of living for urban wage earners and clerical workers.

The formula is simple: It takes the average CPI-W value for the months of July, August, and September and divides that number by the average CPI-W value for the same months a year earlier. The values ​​are usually released in the middle of the second week of each month. The BLS just released the data for August, and here’s where it stands.

Data source: Social Security Administration and Bureau of Labor Statistics.

As noted, the average year-over-year increase in CPI-W over the first two months of the quarter was 2.6%. But a large 0.2% monthly increase in the measure last September will likely imply a smaller year-over-year increase in the measure this September. Even with a similar monthly increase as last year, the average for the quarter will only result in a COLA of 2.5%.

At this point, it’s highly likely that retirees will see a 2.5% COLA next year. The Senior Citizens League updated its forecast to include the same number. That said, we won’t know for sure until October 10, when the BLS releases the September CPI-W reading. Any number between 308,662 and 309,610 results in a 2.5% COLA due to rounding.

The 2025 COLA will leave many retirees worse off

If the numbers come in as expected, a 2.5% COLA means the average retiree will see a $48 monthly boost in benefits. That’s based on the average $1,920 retiree benefit the Social Security Administration paid last month.

Importantly, Social Security recipients probably won’t see the full amount of that $48 boost in their monthly checks. That’s because the Social Security Administration may withhold a portion of your benefits to pay taxes or Medicare Part B premiums.

Many seniors are faced with the reality that more and more of their Social Security benefits are subject to income taxes each year. That’s because income thresholds that determine what percentage of benefits are taxable haven’t been adjusted for inflation in more than 30 years. As a result, taxes can impact the size of your monthly benefit check.

What’s more, Medicare premium increases could come as a nasty surprise to many. The Medicare Board of Trustees has estimated that Part B premiums could rise by $10.30 in 2025, to $185 per month. That will eat more than 20% off the average monthly benefit increase. Medicare premiums for 2025 won’t be announced until mid-October.

The rising cost of Medicare presents a significant challenge for retirees. Many are seeing their actual cost of living rise faster than their Social Security COLA. Medical expenses make up a large portion of seniors’ budgets, and they are rising faster than the average inflation rate. Housing is another large budget category for many, and the housing component of inflation is also rising faster than the overall average. As such, many retirees are forced to tighten their budgets because their Social Security checks are not covering their basic needs.

The good news for seniors is that the economy is showing signs of returning to slow and steady inflation. Historically, low and steady inflation has resulted in an increase in the purchasing power of Social Security checks. Unfortunately, it looks like retirees will have to wait until at least 2026 to get any relief.