Social Security is set to announce a 2.5% benefit increase for 2025, impacting over 72 million Americans. This adjustment will raise average monthly benefits by about $50, starting in January. Although smaller than previous years’ increases, it aims to help retirees cope with ongoing inflation, which remains a concern despite recent cooling trends.
What Is A COLA?
Legislation enacted in 1973 provides for cost-of-living adjustments or COLAs. With COLAs, Social Security and Supplemental Security Income (SSI) benefits keep pace with inflation.
Latest COLA
The latest COLA is 2.5 percent for Social Security benefits and SSI payments. Social Security benefits will increase by 2.5 percent, beginning with the December 2024 benefits, which are payable in January 2025. Federal SSI payment levels will also increase by 2.5 percent, effective for payments made for January 2025.
Because the normal SSI payment date is the first of the month and January 1 is a holiday, the SSI payments for January are always made at the end of the previous December.
How Is A COLA Calculated?
The Social Security Act specifies a formula for determining each COLA. According to the formula, COLAs are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.
A COLA effective for December of the current year is equal to the percentage increase (if any) in the CPI-W from the average for the third quarter of the current year to the average for the third quarter of the last year in which a COLA became effective. If there is an increase, it must be rounded to the nearest tenth of one percent. If there is no increase, or if the rounded increase is zero, there is no COLA for the year.
COLA Computation
The last year in which a COLA became effective was 2023. Therefore, the law requires that we use the average CPI-W for the third quarter of 2023 as the base from which we measure the increase (if any) in the average CPI-W. The base average is 301.236, as shown in the table below.
Also shown in the table below, the average CPI-W for the third quarter of 2024 is 308.729. Because this average exceeds 301.236 by 2.5 percent, the COLA effective for December 2024 is 2.5 percent.
