As inflation cools, estimate for 2025 Social Security cost-of-living adjustment goes down

Personal Finance

A shopper scans coupons in a grocery store in Washington, D.C., on May 23, 2024. 
Tom Williams | Cq-roll Call, Inc. | Getty Images

The pace of inflation is coming down, which continues to point to a lower Social Security cost-of-living adjustment for retirees and other beneficiaries in 2025.

The Social Security cost-of-living adjustment, or COLA, may be 2.7% next year, according to an estimate from Mary Johnson, an independent Social Security and Medicare policy analyst, based on new government data released on Thursday.

That inflation measure, the Consumer Price Index — which tracks the average change in prices paid by consumers on a basket of goods and services — reached about its lowest 12-month rate in more than three years, based on June data.

Social Security adjusts benefits each year based on a subset of the CPI — the Consumer Price Index for Urban Wage Earners and Clerical Workers. The CPI-W in June was up 2.9% over the past 12 months, according to the Bureau of Labor Statistics.

The new 2.7% COLA estimate is down from Johnson’s previous prediction of a 3% benefit boost based on May CPI data. In 2024, Social Security beneficiaries received a 3.2% cost-of-living adjustment.

The Senior Citizens League, a nonpartisan senior group, estimates the COLA could be 2.63% in 2025.

Yet while the rate of price growth has come down, retirees, disabled individuals and others who rely on Social Security benefits for income are still contending with higher costs, Johnson explained.

For example, beneficiaries typically spend about half their budgets on shelter costs, a category that has stayed higher even as the rate of broader inflation has come down.

Other categories that continue to outpace the overall rate of inflation include food, electricity, and hospital and outpatient medical services, according to Johnson.

The average grocery item with prices tracked by the CPI jumped by 24% from 2020 to 2023, according to The Senior Citizens League.

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To be sure, the estimate for the Social Security cost-of-living adjustment for 2025 is subject to change.

The Social Security Administration officially determines the cost-of-living adjustment by comparing the third quarter CPI-W data for that year to the third quarter of the previous year. If there is a percentage increase from one year to the next, that determines the COLA. However, if there is no increase, there is no COLA.

The agency typically announces the cost-of-living adjustment for the following year in October.

This is a developing story. Please check back for updates.

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