Smallest COLA Increase Since 2021
The Social Security Administration has announced a 2.5% cost-of-living adjustment (COLA) for 2025. This marks the smallest benefit increase since 2021 when beneficiaries saw a 1.3% adjustment. The COLA is designed to help Social Security payments keep up with inflation. The adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks inflation between the previous year’s third quarter and the current year’s third quarter.
As inflation has slowed in recent months, the corresponding adjustment to benefits has also declined. While this lower increase may seem concerning, experts suggest it signals less severe inflation. “It’s better when the number is small,” said Charles Blahous from George Mason University’s Mercatus Center, pointing out that seniors are facing less economic strain than in prior years.
Impact on Beneficiaries
although the 2.5% increase is not the lowest on record, it still affects millions of Social Security recipients, including retirees and individuals with disabilities. In the past, there were years, such as 2016, 2011, and 2010, where no increase occurred. However, the continued rise in living costs makes the smaller adjustment challenging for many.
Social Security policy analyst Mary Johnson, also a beneficiary, noted the change in financial management since inflation surged. “Before the inflation got so high, we just took lower costs for granted,” Johnson stated. The discrepancy between rising prices and the modest cost-of-living adjustment (COLA) increase for 2025 may come as a shock to some recipients, according to Shannon Benton, executive director at The Senior Citizens League. Many are still grappling with high costs for essential goods and services, particularly health care and housing.
Debates on Changing the COLA Formula
There is ongoing debate among experts and lawmakers regarding how the cost-of-living adjustment (COLA) should be calculated. Some argue that a different index, like the Consumer Price Index for the Elderly (CPI-E), might better reflect the spending habits of older Americans. Jenn Jones, vice president of AARP, supports a more accurate measure tailored to seniors’ needs. However, not all experts agree.
Charles Blahous argues that a third of Social Security beneficiaries are not elderly, and therefore using the CPI-E might not be suitable for the entire population. He suggests the chained CPI, which adjusts for changes in consumer behavior, as a better alternative. As lawmakers continue to propose bills to change the COLA calculation, advocacy groups, including the National Committee to Preserve Social Security and Medicare, have voiced support for the CPI-E. They believe it would provide a more accurate reflection of seniors’ spending, especially in areas like health care.
