2025 Social Security COLA Forecast Drops Again to 2.5% as Inflation Cools
The 2025 cost-of-living adjustment (COLA) for Social Security benefits is projected to be 2.5%, according to recent estimates based on the August 2024 consumer price index data. This adjustment represents a decrease from the 3.2% increase that beneficiaries saw in 2024 and marks the lowest COLA adjustment since 2021.
The COLA is a vital adjustment to Social Security benefits, designed to help beneficiaries keep pace with inflation. However, the projected 2.5% COLA may feel insufficient to some recipients, especially as the cost of essentials — such as housing, meat, auto insurance, and various services — remains high. Independent Social Security expert Mary Johnson emphasized that while this 2.5% increase is average when compared to the past 20 years, many beneficiaries will continue to face financial pressure due to persistent price increases in key areas.
According to VA disability benefits expert Brian Reese:
“My latest estimate for the 2025 VA COLA increase is 2.5%, which will be applied to VA disability compensation rates effective December 1, 2024, with payments starting January 1, 2025. I’ve adjusted my 2025 COLA prediction downward yet again after the August 2024 CPI report came in lower than anticipated, signaling that inflationary pressures continue to ease. The 12-month inflation rate is just 2.5%, down 0.4 percentage point from the July 2024 level, and the lowest since February 2021.” — Brian Reese
How COLA Is Determined
The COLA is calculated by comparing inflation during the third quarter (July, August, and September) of the current year to the same period from the previous year. Specifically, the Social Security Administration (SSA) uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to track inflation. For August 2024, the CPI-W showed a 2.4% increase over the previous year, a drop from July’s 2.9% rise. As inflation cools, so does the projected COLA, which is why estimates for the 2025 adjustment have been revised downward.
Impact on Beneficiaries
While cooling inflation may signal good news for the economy, it presents mixed results for Social Security beneficiaries. Lower inflation means a smaller increase in benefits, which may leave retirees struggling to keep up with living expenses. Essentials like groceries, healthcare, and housing have seen significant price increases in recent years, and many retirees rely heavily on Social Security for their monthly income. As a result, even a small difference in COLA can affect the financial stability of millions of Americans.
Johnson noted that despite the declining inflation rates, beneficiaries may continue to feel the pinch from “sticky” prices in essential goods and services. These elevated costs can be difficult for those on fixed incomes to manage, even with modest COLA increases.
What’s Next?
Although the 2.5% COLA estimate for 2025 offers some relief, the final adjustment will be determined based on the full set of inflation data for the third quarter. Beneficiaries will learn the exact percentage in October, when the Social Security Administration (SSA) makes its official announcement.
Looking ahead, the ongoing battle between inflation trends and cost-of-living adjustments underscores the importance of accurate financial planning for Social Security recipients. Beneficiaries should stay informed of changes to their benefits and consider how to best manage their income in light of ongoing price fluctuations.
In the meantime, cooler inflation could encourage the Federal Reserve to consider cutting interest rates, which may provide broader economic relief. However, until the final numbers are in, Social Security beneficiaries should prepare for a modest increase in their benefits in 2025.
About the Author
Brian Reese is one of the world’s top VA disability benefits experts and the #1 bestselling author of VA Claim Secrets and You Deserve It. Frustrated with the VA claim process, Brian founded VA Claims Insider to help disabled veterans win their VA disability compensation faster. He has served over 10 million military members and veterans since 2013. A former Air Force officer, Brian deployed to Afghanistan in 2011. He is a Distinguished Graduate from the U.S. Air Force Academy and holds an MBA from Oklahoma State University, where he was a National Honor Scholar.
