In just a few weeks, retirees will receive their first Social Security checks for 2025, including the annual cost-of-living adjustment (COLA).
The increase is set to raise the average benefit to $1,976 per month, a modest 2.5% increase. While any raise is welcome, this is much lower than the generous 8.7% COLA retirees received in 2023.
Many seniors argue the 2.5% bump is not enough to keep up with the rising costs they face. To make matters worse, a flaw in how Social Security calculates COLAs could cost the average retiree $120 in 2025, leaving them struggling to make ends meet.
How Social Security Calculates COLA?
The Social Security Administration (SSA) determines annual COLAs using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
This index tracks inflation by measuring changes in prices for a specific basket of goods and services. The SSA calculates the average CPI-W for the third quarter of the year and compares it to the previous year to determine the percentage increase.
While this method may sound reasonable, the CPI-W does not accurately reflect the spending habits of retirees. It focuses on urban households where at least one person is employed, which excludes retirees who rely primarily on Social Security.
Why Retirees Lose Out?
Retirees’ expenses are better captured by the Consumer Price Index for the Elderly (CPI-E). This index accounts for older adults’ unique spending patterns, such as higher medical expenses.
Yet, the SSA does not use the CPI-E to calculate COLAs, resulting in smaller increases for retirees.
For example, if the SSA had used the CPI-E for the 2025 COLA, retirees would have received a 3% adjustment instead of 2.5%. That extra 0.5% would add roughly $10 per month to the average retiree’s check—$120 for the entire year.
While this may seem minor, for retirees on a fixed income, every dollar counts. The additional $120 could cover rising Medicare Part B premiums, which are often deducted directly from Social Security payments.
A History of Missed Opportunities
This is not a new issue. Studies from The Senior Citizens League (TSCL) show that using the CPI-E would have resulted in higher COLAs in most years. Between 2014 and 2024, retirees would have received an extra $2,689 had the CPI-E been used.
Despite this, there has been little progress toward adopting the CPI-E for COLA calculations. While some lawmakers support the change, the proposal has not gained significant traction in Congress.
What Retirees Can Do?
For now, retirees will need to find ways to make up for the shortfall. Personal savings or part-time work can help bridge the gap.
Additionally, seniors should explore other government programs like Supplemental Security Income (SSI) to help cover essential expenses.
While the Social Security COLA helps cushion the impact of inflation, the current calculation method leaves retirees vulnerable to rising costs. Until the system is updated to reflect their true spending needs, seniors may continue to feel the pinch.
By understanding these issues and planning accordingly, retirees can better prepare for financial challenges in the years ahead.
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Archer Bannister is a journalist with 4 years of experience covering hard-hitting stories. Currently working with Mikeandjonpodcast, Archer specializes in delivering timely and in-depth updates on a variety of topics, including crime news, politics, and national issues affecting the USA. His expertise and dedication to delivering accurate, impactful news make him a trusted voice for audiences seeking to stay informed on critical topics.
