Bad news for Social Security retirees, COLA 2025 may be cause for concern this year

Bad news for Social Security retirees, COLA 2025 may be cause for concern this year

Since 1975, the Social Security Administration (SSA) has increased benefits on an annual basis to prevent beneficiaries’ purchasing power from declining due to inflation. Since the covid-19 pandemic, prices have risen faster than normal, exceeding the Federal Reserve’s target.

As a result, the last four years have seen the longest period of cost-of-living adjustment (COLA) increases of more than 2.5% since 1996. The SSA COLA increases for 2022–2025 have been 5.9%, 8.7%, 3.2%, and 2.5%, respectively.

While this may increase Social Security benefits, there is particular concern about new government data and potential new policies that could be implemented.

Inflation outpaces COLA increase in 2025

The SSA calculates the COLA increase using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the year (July, August, September) preceding the one to which it will be applied.

If inflation falls from its current level, the boost to payments will be greater than the rate at which prices rise.

Benefits, on the other hand, will more or less keep up with inflation if it remains relatively flat this year and next. However, when the COLA was announced in October 2025, inflation had accelerated once more, and in November and December, it was higher than the 2.5% COLA increase for the following year.

Furthermore, the annual inflation rate for 2024 was 2.9%, implying that the increase in Social Security benefits was less than the inflation experienced by the economy throughout the year. The same was true the previous year, as well as in 2021.

In fact, most years since 2010, the COLA has been less than the annual inflation rate. That means that the average monthly payments to Social Security retired beneficiaries were hundreds of dollars lower than they could have been.

While the COLA is intended to help keep monthly payments in line with inflation, the Senior Citizens League reports that seniors are feeling the effects of inadequate Social Security payments.

In a recent report, ‘2024 Loss of Buying Power,’ the advocacy group stated that the average Social Security payment in 2024 is “worth only about 80 cents on the dollar compared to 2010.”

New policies under Trump administration could worsen inflation

Donald Trump was sworn in as president of the United States for the second time on January 20, and he has already begun implementing some of the policies he campaigned on, as well as reiterating others that will have an impact on the US economy in the form of increased inflation.

They include levying tariffs on imported goods from the United States’ major trading partners. Furthermore, implementing a mass deportation program could result in labor shortages, raising wages but increasing costs.

He has also proposed eliminating taxes on tips, overtime pay, and seniors’ Social Security benefits. The Congressional Budget Office estimates that this could accelerate the Old-Age and Survivors Insurance Trust Fund’s insolvency by up to three years, to 2031.

Furthermore, the Committee for a Responsible Federal Budget estimates that benefits would have to be reduced by 23% overall, or $16,500 per year for the average couple receiving retirement benefits.

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