It’s the end of the year, which means the federal government is making some important announcements about annual changes to programs and their benefits. One of these is about the Social Security COLA.
If the term “COLA” brings to mind the soda aisle at your local grocery store, then headlines like “5 Ways To Stretch the Social Security COLA” might be confusing. So, first, let’s clarify: The federal government is not selling a new beverage so scarce - and so delicious - that you’ll need to ration it. COLA actually stands for Cost-Of-Living Adjustment. Simply put, it’s the amount of additional money that the Social Security Administration will pay to beneficiaries in the coming year to keep up with the rising cost of food, housing, and more (see: inflation).
For 2025, the Social Security COLA increase is 2.5%. That means the millions of Americans who rely on Social Security benefits will get around $50 more per month in 2025.
That might not sound like a lot of money, but the COLA is important for people who rely on these benefits. A large portion of these folks are retirees; as of June 2024, nearly 90% of people aged 65 and older received a Social Security benefit.
So, what’s the COLA actually mean for their household budgets? Let’s run some numbers. In 2024, the average Social Security benefit for a retiree was $1,907 each month. In 2025, with the COLA, that payment will increase by about $47.68 for a total of $1,954.68 per month.
Behind the scenes, SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers to calculate the annual bump. That’s just a long-winded way to say they look at data about how much people pay for goods and services. Specifically, they look at the data from Q3 this year, compare it to last year, and then use that data to calculate the increase for next year.
So, how’s the COLA increase for 2025 stack up to previous years? It’s actually the smallest increase in four years. Last year’s bump was 3.2%, and in 2023, there was a whopping 8.7% jump. But it’s worth noting this year’s 2.5% step is right around the typical increase, which has been 2.6% since 2000.
If you don’t receive these benefits, you might be thinking, “So why should I care about the COLA?” Well, chances are, the COLA affects someone you know: your grandparents or parents. And the effect of the COLA can also ripple through the economy. Those who have more money spend more money, which helps businesses and workers.
The bottom line is, COLA might seem like an odd acronym and a small data point, but it impacts millions of people’s ability to afford basic needs.
To learn more about the COLA and Social Security benefits, check out these resources:
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