Because of this, the Social Security COLA for 2025 is smaller

The Social Security Administration said Thursday that the cost of living adjustment in 2025 will be 2.5%.

When this increase goes into effect, it will be the lowest benefit adjustment that beneficiaries have experienced since 2021, when the cost of living adjustment (COLA) was 1.3%.

The Social Security cost of living adjustment was introduced to help benefits keep pace with inflation.

The COLA is calculated based on a subset of the consumer price index known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The percentage increase in the CPI-W from the third quarter of last year to the third quarter of this year determines the cost of living adjustment.

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As the government's inflation data shows that the pace of inflation has eased, the size of the annual benefit increase has declined.

“It's better if the number is small because that means senior inflation isn't as bad as it could have been,” said Charles Blahous, senior research strategist at George Mason University's Mercatus Center.

The 2025 adjustment is not the lowest the Social Security COLA has ever been. In 2016, 2011 and 2010 it was zero and there was no increase at all in beneficiaries in these years.

Nevertheless, pensioners, people with disabilities and other benefit recipients will see a smaller adjustment for 2025 as they continue to struggle with high costs.

“Before inflation got this high, we assumed that lower costs were a given,” said Mary Johnson, an independent Social Security and Medicare policy analyst who is also a Social Security recipient. “Since then, the way we have to deal with it has really changed significantly.”

A lower cost of living adjustment when prices are still high – and inflation was higher earlier this year – will be a “real shock” to some people, said Shannon Benton, executive director of The Senior League.

There is debate among advocates and lawmakers about whether a different measurement should be used for cost-of-living adjustments. Such a change would have to be approved by Congress.

The current annual increase, which is automatic and increases each year, is very valuable, said Jenn Jones, vice president of government affairs at the top advocacy group AARP.

“That’s what makes Social Security really unique and really special and important to older Americans,” Jones said.

AARP supports a COLA measurement that is accurate and reflects the spending of older Americans, she said. Another experimental index – the Consumer Price Index for the Elderly (CPI-E) – could better reflect the spending habits of seniors, the nonpartisan group argues.

“Whenever Congress decides to act in a bipartisan manner to finally secure Social Security’s financial future, we believe CPI-E should be part of that discussion,” Jones said.

Following Thursday's announcement of the 2025 COLA, other high-level advocacy groups also voiced support for a move to the CPI-E, including the National Committee to Preserve Social Security and Medicare and Social Security Works.

“The traditional formula (CPI-W) does not fully account for the impact of inflation on the goods and services on which seniors spend the most money – particularly health and housing,” said Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare said in a statement.

Not everyone agrees that the CPI-E would be the best measure. Since a third of Social Security recipients are not elderly, it wouldn't make sense to use an index that focuses on that population, Blahous said. Instead, the chained CPI, which measures changes in consumer spending patterns, is more appropriate, he said.

Washington lawmakers have proposed bills that would change the way Social Security's annual cost of living adjustment is measured. This led the Social Security Administration to declare in a statement released Thursday this November that “Social Security’s COLA is on the ballot.”