Social Security Recipients to See 2.5% Increase in 2025 COLA
The Social Security Administration has announced a cost-of-living adjustment (COLA) of 2.5% for 2025, following the release of the September consumer price index (CPI) report.
Understanding the 2025 COLA Calculation
The annual COLA is determined by the change in the CPI for Urban Wage Earners and Clerical Workers (CPI-W) during the third quarter. This year, the CPI-W rose by 2.9% in July, 2.4% in August, and 2.2% in September. Averaging these figures leads to the 2.5% adjustment for beneficiaries.
While retirees may find this increase underwhelming, it is worth noting that it is the lowest adjustment since 2021, when COLA was just 1.3%. Nonetheless, when looking at historical trends, this adjustment fits within a broader context of COLA changes over the years.
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Historical Perspective on COLA Changes
For 50 years, COLA increases have relied on the CPI-W inflation rate. Prior to that, increases were dictated by new laws. The chart below provides a summary of COLAs over the past five decades.
| Year | COLA | Year | COLA | Year | COLA | Year | COLA | Year | COLA |
|---|---|---|---|---|---|---|---|---|---|
| 1976 | 8.0% | 1986 | 3.1% | 1996 | 2.6% | 2006 | 4.1% | 2016 | 0.0% |
| 1977 | 6.4% | 1987 | 1.3% | 1997 | 2.9% | 2007 | 3.3% | 2017 | 0.3% |
| 1978 | 5.9% | 1988 | 4.2% | 1998 | 2.1% | 2008 | 2.3% | 2018 | 2.0% |
| 1979 | 6.5% | 1989 | 4.0% | 1999 | 1.3% | 2009 | 5.8% | 2019 | 2.8% |
| 1980 | 9.9% | 1990 | 4.7% | 2000 | 2.5% | 2010 | 0.0% | 2020 | 1.6% |
| 1981 | 14.3% | 1991 | 5.4% | 2001 | 3.5% | 2011 | 0.0% | 2021 | 1.3% |
| 1982 | 11.2% | 1992 | 3.7% | 2002 | 2.6% | 2012 | 3.6% | 2022 | 5.9% |
| 1983 | 7.4% | 1993 | 3.0% | 2003 | 1.4% | 2013 | 1.7% | 2023 | 8.7% |
| 1984 | 3.5% | 1994 | 2.6% | 2004 | 2.1% | 2014 | 1.5% | 2024 | 3.2% |
| 1985 | 3.5% | 1995 | 2.8% | 2005 | 2.7% | 2015 | 1.7% | 2025 | 2.5% |
Data Source: Social Security Administration. Table by author.
This 2.5% adjustment aligns with historical patterns, particularly when compared to the low inflation seen during the 2010s. Furthermore, this increase is superior to the average COLA of 1.4% from the decade.
Implications for Social Security Beneficiaries
The quick rise in inflation and the associated COLAs during the pandemic were unusual. This spike was driven by significant government spending in response to COVID-19, which expanded the money supply and typically leads to inflation.
Consumer prices can be influenced by various global events, including wars, natural disasters, and political instabilities, as well as unexpected situations such as the pandemic.
Many economists believe the Federal Reserve has managed to control inflation, suggesting it will remain low. However, this also means that future COLAs will likely be modest as the Fed shifts its focus toward preventing a recession and achieving full employment.
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