The Social Security Cost-of-Living Adjustment (COLA) for 2025 is estimated to be 3%, according to Mary Johnson, an independent Social Security and Medicare policy analyst. This estimate is lower than the 3.2% boost received by over 66 million beneficiaries in January 2022 and significantly lower than the record 8.7% COLA in 2023 and the 5.9% COLA in 2022. The COLA is determined by comparing the third quarter Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data of the current year with the same quarter of the previous year.
The latest CPI-W data indicates a decrease in prices for certain categories compared to two years ago as of May. For instance, fuel oil dropped by 35.3%, airline fares decreased by 19.4%, and gasoline declined by 17.7%. Retirees have had to make adjustments to cope with inflation, such as cutting back on savings or using existing assets, which can negatively impact their future wealth, according to the Center for Retirement Research at Boston College.
The impact of Social Security’s COLA varies for individuals based on their personal expenses and location, according to Laura Quinby, senior research economist at the Center for Retirement Research. Some experts argue that the CPI-W may not accurately represent retiree spending, as it assumes older adults spend about 66% of their income on housing, food, and medical costs, while in reality, about 75% of their income is devoted to these costs.
Despite this discrepancy, the latest CPI-W data provides insight into where inflation is subsiding and rising, which may influence the COLA for the following year.
