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As inflation cools in the U.S. economy, experts project the 2025 Social Security Cost-of-Living Adjustment (COLA) increase, which will impact approximately 70 million Americans, to land between 2.5% and 2.7%.
The 2025 Social Security COLA is shaping up to be lower than initially expected, with the latest estimate dipping from 2.7% to 2.6%.
This adjustment follows the recent July 2024 CPI report indicating that inflation eased slightly in July compared to June.
So, what does this mean for you and your benefits?
According to VA benefits expert Brian Reese, “It means Social Security beneficiaries, SSI recipients, federal retirees, and disabled veterans should start planning for a lower-than-expected 2025 COLA increase.”
If the COLA estimate for 2025 holds at 2.6%, it will mirror the average rate we’ve seen over the past two decades and mark the lowest adjustment since 2021.
Table of Contents
Summary of Key Points
- Projected 2025 COLA: Experts estimate the 2025 Cost-of-Living Adjustment (COLA) to range between 2.5% and 2.7%. This projection reflects the cooling inflation rates in the U.S. economy. The COLA is a crucial adjustment for Social Security and other benefits, designed to ensure that recipients maintain their purchasing power as the cost of living changes.
- Impact on Benefits: The COLA increase for 2025 will directly impact approximately 70 million Americans, including Social Security beneficiaries, Supplemental Security Income (SSI) recipients, federal retirees, and disabled veterans. This adjustment helps ensure that these individuals can keep up with the rising costs of goods and services despite inflation.
- Recent CPI Data: The COLA estimate was revised down from 2.7% to 2.6% following the July 2024 Consumer Price Index (CPI) report, which showed that inflation eased slightly compared to the previous month. The CPI measures changes in the cost of goods and services and is a key factor in determining the COLA.
- Planning for Beneficiaries: VA benefits expert Brian Reese advises that beneficiaries should prepare for a lower-than-expected 2025 COLA increase. This adjustment, while lower than recent years, still aligns with the average rates seen over the past two decades. Beneficiaries may need to adjust their financial plans accordingly to accommodate the smaller increase.
What is a Cost-of-Living Adjustment (COLA)?
A COLA is an automatic calculation designed to help consumers maintain their spending power despite inflation.
Each year, COLA is determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures the average change in prices for a basket of goods and services typically purchased by households with incomes from clerical or wage occupations.
The CPI-W is crucial because it directly influences whether there will be a COLA increase.
The Bureau of Labor Statistics (BLS) updates this figure monthly, reflecting the changes in the cost of living.
How is the 2025 Social Security COLA Determined?
The 2025 COLA is calculated based on the percentage increase in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of 2024 compared to the third quarter of 2023.
This percentage is rounded to the nearest one-tenth of a percent (0.1%).
If a COLA increase is justified by the CPI-W, it will take effect on December 1, 2024, with payments beginning on January 1, 2025.
If the CPI-W does not show an increase, no COLA will be paid, as was the case in 2010, 2011, and 2016.
Importantly, the COLA cannot be negative, even if the price index decreases.
What is the Estimated COLA Increase for 2025?
The estimated 2025 COLA currently sits at 2.6%, but with inflation slowing faster than expected, the final adjustment could be lower.
The official 2025 COLA will be announced by the Social Security Administration (SSA) in mid-October 2024.
Until then, inflation trends will be closely monitored, as they will ultimately determine the final COLA figure.
Which Programs Are Impacted by the 2025 COLA Increase?
COLA impacts a wide range of government programs that provide income or benefits, ensuring that recipients’ purchasing power doesn’t erode due to inflation.
Here are some of the key programs affected by COLA:
- Social Security Benefits: Adjusted annually to reflect cost-of-living increases.
- Supplemental Security Income (SSI): Provides financial assistance to disabled, aged, or blind individuals, with benefits subject to annual COLA increases.
- Federal Civil Service Pensions: Like Social Security, federal pensions include COLA provisions to protect retirees’ purchasing power.
- Military Retirement Pay: Military retirees receive annual COLA adjustments to help keep up with inflation.
- VA Benefits: Several VA benefits programs, including 2025 VA disability compensation, VA pensions, Special Monthly Compensation (SMC), and Dependency and Indemnity Compensation (DIC), are all subject to annual COLA adjustments.
- Federal and State Minimum Wage: Some jurisdictions adjust minimum wage levels based on inflation, though this isn’t uniform across all states or at the federal level.
- Food Stamps (SNAP Benefits): The maximum benefit amounts and income eligibility thresholds for the Supplemental Nutrition Assistance Program (SNAP) are adjusted annually for inflation.
- Medicare: Parts of Medicare, such as Part B premiums, may be adjusted based on costs influenced by inflation, though this isn’t a direct COLA.
- Railroad Retirement Benefits: These benefits also include a COLA.
- Long-Term Disability Benefits: Some long-term disability insurance policies include COLA provisions to ensure benefits keep pace with inflation.
- Federal Employees’ Compensation Act (FECA) Benefits: COLA adjustments may apply to benefits provided under FECA, which covers federal employees injured or made ill due to their job.
Here’s What the Experts Are Saying About the COLA 2025
Mary Johnson, The Senior Citizens League:
Mary Johnson highlights that the projected 2.6% COLA is slightly lower than earlier estimates due to recent inflation data.
Alex Moore, Blacksmith Professional Services:
Alex Moore projects a 2.57% COLA for 2025, a slight dip from the previous estimate of 2.63%.
Keith Speights, The Motley Fool:
Keith Speights echoes the 2.6% estimate, explaining that it’s in line with long-term averages but subject to change.
Dan Adcock, National Committee to Preserve Social Security and Medicare:
Dan Adcock also estimates a 2.6% COLA, emphasizing that it reflects a moderation in inflation and aligns with historical trends.
Brian Reese, VA Claims Insider:
Brian Reese estimates a 2.6% COLA for 2025, noting that the figure could decrease further if inflation continues to cool in August and September 2024.
Recent Approved COLA Increases Since 2020
- 2020: 1.6%
- 2021: 1.3%
- 2022: 5.9%
- 2023: 8.7%
- 2024: 3.2%
- 2025: 2.6% (projected)
Historical COLA’s Since 1975
The chart below shows historical COLA increases by year from 1975-2025:
| Year | COLA | Year | COLA |
|---|---|---|---|
| 1975 | 8% | 2001 | 3.5% |
| 1976 | 6.4% | 2002 | 2.6% |
| 1977 | 5.9% | 2003 | 1.4% |
| 1978 | 6.5% | 2004 | 2.1% |
| 1979 | 9.9% | 2005 | 2.7% |
| 1980 | 14.3% | 2006 | 4.1% |
| 1981 | 11.2% | 2007 | 3.3% |
| 1982 | 7.4% | 2008 | 2.3% |
| 1984 | 3.5% | 2009 | 5.8% |
| 1985 | 3.5% | 2010 | 0% |
| 1986 | 3.1% | 2011 | 0% |
| 1987 | 1.3% | 2012 | 3.6% |
| 1988 | 4.2% | 2013 | 1.7% |
| 1989 | 4% | 2014 | 1.5% |
| 1990 | 4.7% | 2015 | 1.7% |
| 1991 | 5.4% | 2016 | 0% |
| 1992 | 3.7% | 2017 | 0.3% |
| 1993 | 3% | 2018 | 2% |
| 1994 | 2.6% | 2019 | 2.8% |
| 1995 | 2.8% | 2020 | 1.6% |
| 1996 | 2.6% | 2021 | 1.3% |
| 1997 | 2.9% | 2022 | 5.9% |
| 1998 | 2.1% | 2023 | 8.7% |
| 1999 | 1.3% | 2024 | 3.2% |
| 2000 | 2.5% | 2025 | 2.6% (estimated) |
Source: SSA Cost-Of-Living Adjustments Since 1975
2025 Cost of Living Increase: Frequently Asked Questions (FAQs)
What is the 2025 COLA estimate?
The 2025 COLA estimate is currently 2.6%, but it could be adjusted lower depending on inflation trends.
When will the 2025 COLA be officially announced?
The SSA will officially announce the 2025 COLA in mid-October 2024. This announcement will be based on the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of 2024.
How is the 2025 COLA determined?
The COLA is determined by comparing the average CPI-W for the third quarter of the current year (2024) to the same period in the previous year (2023). If there is an increase in the CPI-W, the COLA will reflect that percentage increase, rounded to the nearest one-tenth of a percent.
How do I estimate my new monthly payments based on the 2025 COLA estimate?
To estimate your new monthly payments using the 2025 COLA estimate of 2.6%, follow these two steps:
- Step 1: Find your current 2024 monthly payment for the benefit program(s) you receive.
- Step 2: Multiply your current 2024 monthly payment by 1.026 to account for the 2.6% increase.
For example, if your current monthly payment is $1,000/month, take that times 1.026 = ($1,000)(1.026) = $1,026. So, your estimated new monthly payment would be $1,026, an increase of $26.
What should I do to prepare for a lower COLA?
With a lower-than-expected COLA for 2025, it’s essential to review your budget and financial plans for the upcoming year. Consider how the modest increase might impact your monthly expenses, especially if you rely heavily on Social Security, SSI, or VA benefits. You may need to adjust your spending, look for additional savings opportunities, or explore other sources of income to ensure your financial stability.
Which programs are impacted by the 2025 COLA increase?
Several government programs are impacted by the COLA, including Social Security benefits, Supplemental Security Income (SSI), federal civil service pensions, military retirement pay, VA benefits (such as disability compensation and Dependency and Indemnity Compensation), and others like SNAP benefits and certain aspects of Medicare.
What is the effective date of the 2025 COLA?
The 2025 COLA will take effect on December 1, 2024, with the adjusted payments beginning on January 1, 2025. This timing ensures that beneficiaries receive the increased amounts at the start of the new year.
Why is the 2025 COLA lower than in previous years?
The 2025 COLA estimate is lower due to easing inflation compared to recent years. As inflation slows, the need for a large COLA adjustment decreases, resulting in a smaller increase for 2025.
How will the 2025 COLA impact Social Security payments?
If the 2.6% estimate holds, Social Security payments will increase by that percentage, but the increase will be smaller than in recent years. For example, a person receiving $1,500 per month in 2024 would see an increase of approximately $39 for 2025.
Does the COLA impact VA disability benefits?
Yes, VA disability benefits, including pensions, Special Monthly Compensation (SMC), and Dependency and Indemnity Compensation (DIC), are subject to annual COLA adjustments, ensuring that these benefits keep pace with inflation.
Will Medicare premiums change because of the COLA?
Medicare premiums, such as those for Part B, may be adjusted based on costs, but these changes are not directly tied to the COLA. However, the COLA can indirectly affect how much of your Social Security increase is used to cover these premiums.
Can the COLA ever be negative?
No, the COLA cannot be negative. If the CPI-W decreases or shows no increase, the COLA will be set to zero for that year, as has happened in years like 2010, 2011, and 2016.
What happens if there is no CPI-W increase?
If the CPI-W does not show an increase, no COLA will be issued for that year. This scenario has occurred in the past, such as in 2010, 2011, and 2016, when beneficiaries did not receive a COLA due to low or negative inflation.
Are federal pensions affected by COLA?
Yes, federal civil service pensions often include COLA adjustments to protect retirees’ purchasing power, similar to Social Security. This ensures that federal retirees maintain their standard of living despite inflation.
How do inflation trends influence the COLA?
The COLA is directly influenced by inflation, as measured by the CPI-W. If inflation trends downward, the COLA will reflect a smaller increase, and if inflation rises, the COLA will likely be higher to compensate.
Can COLA impact food stamps (SNAP benefits)?
Yes, SNAP benefits are adjusted annually for inflation, which can be influenced by the COLA. This ensures that the purchasing power of SNAP recipients remains stable despite rising costs.
Why is the 2025 COLA important?
The 2025 COLA is crucial for ensuring that beneficiaries of Social Security, VA disability compensation, and other programs maintain their purchasing power despite inflation. It helps offset the rising costs of goods and services, ensuring that beneficiaries can continue to afford their basic needs.
What is the historical context of recent COLA increases?
Recent COLA increases have varied significantly, with 2023 seeing a substantial 8.7% increase due to high inflation, followed by a more moderate 3.2% in 2024. The 2025 estimate of 2.6% reflects a return to more typical levels as inflation eases.
About the Author
Brian Reese
Brian Reese is a world-renowned VA disability benefits expert and the #1 bestselling author of VA Claim Secrets and You Deserve It. Motivated by his own frustration with the VA claim process, Brian founded VA Claims Insider to help disabled veterans secure their VA disability compensation faster, regardless of their past struggles with the VA. Since 2013, he has positively impacted the lives of over 10 million military, veterans, and their families.
A former active-duty Air Force officer, Brian has extensive experience leading diverse teams in challenging international environments, including a combat tour in Afghanistan in 2011 supporting Operation ENDURING FREEDOM.
Brian is a Distinguished Graduate of Management from the United States Air Force Academy and earned his MBA from Oklahoma State University’s Spears School of Business, where he was a National Honor Scholar, ranking in the top 1% of his class.
