Inflation dropped to the lowest level in three years is good news, generally speaking. But it also means Social Security recipients are likely in line for the smallest cost-of-living increase to the monthly benefit since 2021.
The 2025 cost-of-living adjustment, or COLA, is projected to come in at about 2.57%, the Senior Citizens League, an advocacy group for older Americans, said on Wednesday. Down from 2.63% last monththe calculation is based on the rate of inflation, with government figures released earlier in the day showing consumer prices in July rose 2.9%the smallest advance since March 2021.
Although not yet official, since the Social Security Administration typically sets next year’s COLA in October, a 2.57% increase would translate into a monthly increase of nearly $49, based on the current average monthly benefit of $1,900.
The new year’s COLA can be expected with most recipients’ January benefit check.
While many working Americans have seen their wages rise at a faster rate than inflation, seniors on fixed incomes are worried about depleting their savings, according to a survey of 2,016 seniors in July. More than three-quarters, or 78%, reported higher monthly budgets for basics like housing, food and medicine compared to last year, TSCL said.
The Social Security Administration sets its annual COLA based on inflation during the third quarter, or from July to September. The agency takes the average rate of inflation over that period from what’s called the Consumer Price Index for Urban Wage and Office Workers, or CPI-W, which tracks the spending of working Americans.
If that inflation is higher than the same period a year earlier, the COLA is adjusted up by the difference.
But some advocates and lawmakers oppose the use of the CPI-W, arguing that older Americans spend differently than younger workers. For example, the Senior Citizens League has noted that the CPI-W assumes that workers spend about 7% of their income on health care, but older Americans can spend up to 16% or more on health costs.