The Social Security cost-of-living adjustment (COLA) provides a much-needed income boost to retirees and other beneficiaries, allowing them to maintain the same quality of life despite rising prices. Over the past three years alone, Social Security COLAs have increased benefits by a total of nearly 19%, which has certainly eased the sting of high inflation on the tens of millions of beneficiaries.

While it’s too early to know for sure what the 2025 COLA might be, here’s a look at how the Social Security Administration calculates the annual adjustment, what the recent inflation data tells us, and when Americans can expect to learn exactly what next year’s increase will look like.

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Here’s how the Social Security COLA is calculated every year

When it comes to calculating Social Security COLAs, the Social Security Administration uses an index known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But the data used by the SSA is only from the third quarter of each year. After CPI-W data is available for the entire third quarter, the SSA takes an average of the index’s values in July, August, and September and compares it to the three-month average from the same period in the previous year.

As an example, the 2023 COLA was 8.7%, which was the highest in more than four decades. Here’s how the SSA arrived at this particular adjustment percentage:

• First, the CPI-W readings from July, August, and September 2022 were averaged together. These values were 292.219, 291.629, and 291.854, respectively, and the average of the three numbers is 291.91.
• The CPI-W for the three months of the third quarter of 2021 were 267.789, 268.387, and 269.086, which gives a three-month average of 268.415.
• Dividing the two averages shows that prices increased by slightly more than 8.7% from the third quarter of 2021 to the third quarter of 2022, so this is the adjustment that was given to Social Security beneficiaries starting with their payments received in January 2023.

What the recent inflation data tells us

Obviously, we don’t have third-quarter inflation data yet. But according to the latest CPI-W data (March), inflation is running at a 3.5% pace.

If we look at the third-quarter average from 2023, we get a 301.236 average reading for the CPI-W. Based on the 306.502 level of the index from March, we can see that inflation has been about 1.7% since the third quarter of 2023 ended.

What will the 2025 Social Security COLA be?

As discussed, the 2025 Social Security COLA will be determined by comparing third-quarter inflation data from 2024 to data from the same period in 2023. Obviously, the third quarter of this year hasn’t happened yet, so it’s impossible to say for sure what the 2025 COLA will be.

We’ll start to get a better idea of what the COLA might be over the next few months, especially when we start to see some of the third-quarter data. Last year, the SSA officially announced the cost-of-living adjustment on Oct. 12, so it would be reasonable to expect similar timing this year.

That said, there’s little reason to believe that inflation will completely collapse from current levels, so it’s likely that beneficiaries will receive a significant increase to their benefits next year. As mentioned, the most recent CPI-W reading indicated 3.5% year-over-year inflation. According to the latest Social Security Trustees’ Report, experts are expecting a 2025 Social Security COLA of about 2.4%. However, keep in mind that this can change significantly if inflation in the third quarter is significantly higher or lower than experts think it will be.

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