Social Security Retirees Just Got Bad News About the 2025 Cost-of-Living Adjustment (COLA)

Trevor Jennewine, The Motley Fool
Tue, January 21, 2025 at 4:35 AM EST • 4 min read

Since 1975, Social Security beneficiaries have received annual cost-of-living adjustments (COLAs) tied to a subset of the Consumer Price Index known as the CPI-W, which tracks the price of goods and services across the economy.

Here is how it works: The CPI-W from the third quarter of the current year (the average reading between July and September) is divided by the CPI-W from the third quarter of the prior year. The percent increase becomes the COLA in the next year.

Importantly, COLAs are designed to protect the buying power of Social Security by ensuring benefits increase at the same pace as inflation. For instance, CPI-W inflation increased 2.5% in the third quarter last year, so Social Security payments increased 2.5% this year. That is the smallest COLA since 2021.

Unfortunately, Labor Department data published last week showed CPI-W inflation has reaccelerated in the last three months. That trend is bad news for retired workers on Social Security. Here's why.

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