Retirees Face a Lose-Lose Situation When It Comes to the 2025 COLA

The 2025 COLA will either be much smaller than it has been in recent years, or seniors will be coping with high inflation. Here’s why neither situation is good for retirees.

In most years, retirees receive a cost-of-living adjustment (COLA) from the Social Security Administration. The COLA serves a very important purpose. Since prices go up over time, retirement benefits must do the same, or seniors would lose buying power and struggle to cover the basics — especially over a long retirement.

Unfortunately, there’s no good news for seniors when it comes to the COLA that will take effect in 2025. Retirees are in a lose-lose situation.

Two adults looking at paperwork.

Image source: Getty Images.

Here’s why retirees can’t win when it comes to their 2025 COLA

Retirees are looking at disappointment in 2025 because one of two things is inevitably going to happen:

  • They are going to get a smaller COLA than they have in recent years because inflation has cooled.
  • They will see a higher COLA, but that can only happen if prices surge over the next three months. And because the cost-of-living adjustment is backwards-looking, it may not really protect retirees from the price surges they’re experiencing.

Seniors have recently enjoyed some of the largest COLAs in decades. This year, they received a 3.2% raise, but in 2023, they got an 8.7% bump to their benefits and a 5.9% bump the previous year.

Retirees — especially those who left the workforce recently — may have gotten used to these large COLAs. If so, they’re going to be disappointed if they end up with a smaller benefits increase this year, which is what many experts are projecting will happen.

On the other hand, if their COLA is as high, or higher, than what they’ve received this year, that’s also a problem. COLAs are calculated based on the annual third-quarter reading of the Consumer Price Index for Urban Wage Earners and Clerical workers (CPI-W). If the CPI-W shows rising prices, retirees get a raise to account for them. The only way seniors get a big benefits bump in 2025 is if inflation has surged once again.

Inflation is bad for retirees living on a fixed income because everything gets more expensive. Their money from other sources besides Social Security doesn’t just increase in value, since there’s no COLA built into them, leaving retirees with less buying power. What’s more, data from The Senior Citizens League shows Social Security benefits are losing their buying power even with COLAs because the CPI-W is a less-than-ideal measure of how much retirees’ living expenses have gone up over time.

So, retirees are looking at either a small raise that’s going to disappoint them, or they’re looking at a big raise that may not fully shield their benefits as prices rise. Talk about a no-win outcome.

What can retirees do?

The Social Security Administration will report next year’s official COLA in October.

Until then, one big thing Social Security beneficiaries can do is to adjust their expectations. They’re likely to get a smaller raise next year, and they should begin planning for that now by going over their budget. It may be necessary to rethink their spending in 2025 as a result.

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