The 2025 cost-of-living adjustment (COLA) for Social Security is forecast to be 2.5%, according to new estimates. This represents a slight dip from last month’s estimate of 2.6% and is significantly lower than the 2024 COLA of 3.2%.
As inflation continues to cool, so does the anticipated increase in Social Security benefits, though this decline in COLA is raising concerns about the financial struggles seniors face.
Given this lower adjustment, seniors are likely to experience difficulty keeping up with rising costs, especially as key expenses like housing, food, and healthcare continue to climb. The small increase may do little to help seniors climb out of poverty or meet their financial needs.
COLA Details
The COLA is intended to help Social Security beneficiaries maintain their purchasing power in the face of inflation. In 2025, a 2.5% increase will mean about $46.80 more per month for the average Social Security check, which currently stands at $1,870.
However, with the prices of essentials like housing and groceries still elevated, even this modest boost may feel inadequate.
Mary Johnson, an independent Social Security and Medicare policy analyst, highlights that the 2025 COLA is expected to be the lowest increase beneficiaries have seen since 2021. Despite this, the cost of goods seniors rely on has continued to rise faster than the inflation rates that determine their benefits.
More Seniors in Poverty
The situation becomes even more concerning when examining poverty rates among seniors. According to a recent Census Bureau report, the percentage of seniors living in poverty has been steadily rising since 2020.
In 2023, 14.2% of seniors (ages 65 and up) were in poverty, up from 14.1% the year prior. This is a sharp increase compared to 2020, when only 9.5% of seniors lived below the poverty line.
The cost-of-living adjustments haven’t kept pace with the specific inflation seniors experience, especially in categories like healthcare, housing, and food.
According to The Senior Citizens League (TSCL), Social Security benefits have lost 20% of their purchasing power since 2010. For example, what a retired household could buy with $100 in groceries in 2010, they can now only purchase around $80 worth.
TSCL estimates that retired workers would need an increase of $370 per month, or $4,440 annually, to recover their lost purchasing power. This discrepancy is why more and more seniors are finding themselves falling into poverty each year.
Medicare Premium Increases
Medicare premiums are another key factor eating away at seniors’ benefits. Medicare Part B, which covers necessary medical services, has seen its premiums increase by an average of 5.5% annually over the past two decades. In contrast, COLA adjustments have averaged just 2.6% over the same period.
For 2025, Medicare Part B premiums are expected to rise to $185 per month, up from $174.70 in 2024. This projected 5.9% increase means Medicare premiums are growing faster than the COLA, which could result in seniors losing a significant portion of their monthly Social Security benefits to healthcare costs.
This dynamic has a particularly damaging effect on seniors who rely solely on Social Security. As Medicare premiums rise, they automatically deduct from Social Security checks, leaving less money for other essentials. This further widens the gap between seniors’ income and their actual cost of living.
How COLA Is Calculated
The Social Security COLA is determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks changes in prices for goods and services. The CPI-W measures inflation over a three-month period from July to September each year, with the final COLA announced in October.
One key issue with using the CPI-W is that it reflects inflation for younger, working adults, rather than retirees. Johnson points out that working adults under 62, who are the primary focus of the CPI-W, tend to spend less on healthcare—only about 7% of their budget.
Meanwhile, seniors spend significantly more, often 15% or more of their income on healthcare. As a result, the COLA may not fully account for the rising healthcare costs that heavily impact seniors.
A Challenging Future for Retirees
As inflation remains elevated for essential goods, the modest COLA increase predicted for 2025 may not be enough to alleviate the financial strain on retirees.
Social Security benefits are being eroded by rising Medicare premiums and the overall increase in the cost of living. Without significant changes to the way COLA is calculated or additional financial support, many seniors may find themselves falling deeper into poverty.
For now, retirees must keep a close eye on their expenses and adjust their budgets to account for the ongoing financial challenges. The combination of rising prices and insufficient benefit adjustments will likely continue to pose serious issues for seniors in the years ahead.
FAQs
What is the expected COLA for 2025?
The 2025 COLA is projected to be 2.5%.
How much will the average benefit increase in 2025?
It will increase by approximately $46.80 per month.
Why are more seniors falling into poverty?
COLA hasn’t kept pace with the rising costs of essential goods and services.
How much is Medicare Part B increasing in 2025?
The premium is expected to rise to $185 per month.
How is the Social Security COLA calculated?
It’s based on the Consumer Price Index for Urban Wage Earners (CPI-W).
They act like us on fixed income gets all this money each month and tells us we need to watch our spending and make it last we don’t even have enough money just to pay ALL OF OUR BILLS all the bills aren’t even getting paid that’s not even enough to make it thru the month we can’t even afford the essentials much less anything else the cola raise is like a slap in the face it’s a non ending vicious cycle all these promises to help us and we still can’t even make it there’s no light at the end of the tunnel for us why did we work all these years for nothing just to be lower than poverty where is our help we paid in our taxes and this is the return we get we cant afford anything this day and time