The annual Social Security cost of living adjustment for 2025 has dipped from 2.63% last month to 2.57% based on today's Consumer Price Index data, according to the non-partisan senior group the Senior Citizens League.
“The prospective COLA for next year would be considered the average amount that COLAs have been over the past two decades and the lowest since 2021," said Mary Johnson, a Social Security and Medicare policy analyst.
Last year’s COLA was 3.2%. The final 2025 COLA will be announced in October.
Johnson noted that inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is used to calculate the COLA, is 2.9% higher than a year ago, and down from 3% in June. She also said that the inflation number for July is key because the COLA is determined on the average rate of inflation in the third quarter (July, August, September) versus the average third quarter inflation a year ago.
Alex Moore, the Senior Citizens League’s (TSCL) Social Security and Medicare statistician, said the league’s research has found that the Fed’s interest rate is able to explain about 23% of the COLA’s variance.
“On average, for every one percentage point increase in the federal funds effective rate compared to the previous year, the following year’s COLA rises about .82 percentage points. In short, since both interest rates and COLAs tend to rise in reaction to higher-than-expected inflation, climbing interest rates can help predict the COLA,” he said.
Moore, also the managing partner at consulting firm Blacksmith Professional Services, said a top concern of seniors is that inflation has not returned to pre-pandemic levels. He said a retirement survey conducted by TSCL in July showed that 71% of the 2,016 seniors polled indicated that persistent high prices from inflation are forcing them to deplete their savings.
Seventy-eight percent said their monthly budget for essentials like housing, food, and medicine was higher than last year, and 63% worry that their retirement income will not be enough to cover the cost of essentials.
“Seniors want Congress to act to ensure their Social Security benefits keep up with inflation. Using existing tools, like the Federal Reserve interest rate, is not enough,” Moore said, noting that 75% said they want Congress to pass legislation that would base COLAs on the CPI for the Elderly (CPI-E), a price index that’s specific to seniors, rather than the CPI for Urban Wage Earners (CPI-W), which is better suited to the general population.