In April, nearly 51 million retired worker beneficiaries received an average Social Security check of $1,915.26. While this amount may not be life-changing, Social Security benefits are crucial to the financial stability of most retirees.
These benefits lifted approximately 16.5 million seniors ages 65 and older out of poverty in 2022 and were a major source of income for 88% of retirees surveyed by Gallup last April. Given the importance of this income, attention is now being paid focused on 2025 cost of living adjustment (SALARY READJUSTMENT).
Social Security COLA adjusts profits to account for inflation. If the cost of goods and services increases, profits should ideally increase accordingly to maintain purchasing power. Before 1975, COLAs were determined arbitrarily by Congress, with only 11 increases between 1940 and 1975.
Since 1975, the Consumer Price Index for Urban Wage Earners and Office Workers (CPI-W) has been used to measure annual inflation for Social Security adjustments. The CPI-W covers several categories of spending, each of which contributes to the overall monthly inflation figure. However, only the CPI-W readings from the third quarter (July to September) are used to calculate the COLA for the next year.
If the average CPI-W reading for the third quarter of the current year is higher than that of the same period of the previous year, it indicates inflation and beneficiaries will receive a larger payment. This year-over-year percentage change, rounded to the nearest tenth of a percent, determines the increase in Social Security checks.
In recent years, Social Security beneficiaries have seen substantial increases in their checks, with COLAs of 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024. The average COLA over the past 20 years has been 2.6%, so beneficiaries are hopeful of another above-average increase in 2025.
On May 15, the US Bureau of Labor Statistics released the April inflation report, which indicates a 3.4% increase in the CPI-W over the last 12 months. This figure remains above the Federal Reserve’s 2% inflation target. The Senior Citizens League (TSCL) has forecast a 2025 COLA of 2.7%, slightly above the long-term average.
For retired workers, who received an average check of $1,915.26 in April, 2.7% COLA would result in a monthly increase of $52, bringing the average check to approximately $1,967. Workers with disabilities and surviving beneficiaries would also see increases of $42 and $41, respectively.
Despite the projected increase, rising costs of essential expenses like housing and health care mean the purchasing power of Social Security benefits continues to decline. Seniors spend a higher percentage of their income on these needs and inflation in these areas remains high.
The challenge of maintaining purchasing power persists, with a TSCL study indicating a 36% decline in the purchasing power of Social Security dollars between January 2000 and February 2023. No changes to how COLAs are calculated , beneficiaries may continue to face financial difficulties despite periodic increases. .
