Every year, the Social Security Administration (SSA) adjusts its benefits to address inflation, the enemy of the purchasing power of all those beneficiaries who depend on such benefits to make ends meet and meet their living expenses. In order to achieve this, the SSA applies a cost of living adjustment (COLA), which will be announced soon because some data is missing to reach a conclusive number.
The COLA adjustment is determined by the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The SSA compares the average CPI-W for the third quarter (July to September) of the current year with the same period of the previous year. If it is determined that there was an increase, Social Security benefits are adjusted accordingly. If there was no movement, then the benefits remain as they are for another year.
The COLA Adjustments in Recent Years
Not every year the COLA increase is the same, since it responds to the increase in the cost of living as a result of inflation in the last year. These have been the adjustments of the last 10 years, according to data from the SSA itself:
- 2024: 3.2%
- 2023: 8.7%
- 2022: 5.9%
- 2021: 1.3%
- 2020: 1.6%
- 2019: 2.8%
- 2018: 2.0%
- 2017: 0.3%
- 2016: 0.0% (There was no adjustment)
- 2015: 1.7%
- 2014: 1.5%
- 2013: 1.7%
- 2012: 3.6%
- 2011: 0.0% (There was no adjustment)
- 2010: 0.0% (There was no adjustment)
- 2009: 5.8%
- 2008: 2.3%
- 2007: 3.3%
- 2006: 4.1%
- 2005: 2.7%
- 2004: 2.1%
Although the increase is calculated to be announced in October of each year, beneficiaries will see the increase in their bank deposits or paper checks only on January 1.
What Is the Estimated COLA for 2025?
With two months of data still to be scrutinized, current estimates from The Senior Citizens League (TSCL) suggest that the COLA increase for 2025 will be substantially lower than the 3.2% in 2024 and 8.7% in 2023.
Estimates from this senior advocacy group indicate that the 2025 COLA could be 2.57%, which would add about $50 more to each monthly check to beneficiaries.
Beneficiaries Are Losing Against Inflation, Study Suggests
The “2024 Loss of Buying Power” report published by The Senior Citizens League (TSCL) reveals that Social Security benefits have lost approximately 20% of their purchasing power since 2010. This means that, in real terms, the average Current monthly payments are only 80% of what they were 14 years ago. For beneficiaries to recover lost purchasing power, their payments would have to increase by $4,442 annually.
The main reason for this decline is that cost of living adjustments (COLA) have not kept pace with inflation. In fact, in 8 of the last 15 years, COLAs were lower than inflation, compounding the loss of purchasing power for retirees. Although recent years have seen some of the highest COLAs in decades (8.7% in 2023 and 5.9% in 2022), these increases have not been enough to offset the accumulated loss.
Retirees, Disabled, Other Beneficiaries Impacted by the Inflation
The report also highlights that the costs that have contributed the most to this loss of purchasing power are those related to housing and transportation, which have seen price increases of 81.2% and 96.6%, respectively, since 2010. Other important expenses such as Healthcare and food have also seen significant increases, although to a lesser extent.
Additionally, the study highlights that Social Security faces a significant financial challenge, as its funds are expected to be depleted in 2033 if significant changes are not made. This could result in a 23% reduction in benefits from that date.
To mitigate these issues, TSCL suggests several reforms, such as linking COLAs to the Consumer Price Index for the Elderly (CPI-E), which better reflects retiree spending, and removing the income limit for payroll taxes. of Social Security. However, any changes would require congressional action to stabilize the program’s finances and protect future generations.