The Social Security Administration’s (SSA) annual Cost of Living Adjustment (COLA) is a key moment for retirees, as it determines how much their monthly benefits will rise. The 2025 COLA forecast suggests a modest increase, reflecting inflation trends and economic conditions.
2025 COLA: What’s the Forecast?
The 2025 COLA is forecasted to be 2.5%, a slight decrease from an earlier estimate of 2.6%. This adjustment will impact the monthly payments of approximately 68 million retirees, with the official announcement set for October 10, 2024, at 8:30 am ET. One place you can monitor for the new COLA announcement is the SSA’s Communications Corner.
How COLA is Calculated
The SSA calculates the COLA by using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The SSA averages the CPI-W data from the third quarter (July, August, September) of the current year and compares it to the previous year’s data.
Here’s a look at the CPI-W data for 2023 and 2024, which is used to calculate the COLA:
| Month | CPI-W 2022 | CPI-W 2023 | CPI-W 2024 (Projected) |
|---|
| July | 292.219 | 299.899 | 308.501 |
| August | 291.629 | 301.551 | 308.640 |
| September | 302.257 | 302.257 | TBD |
| Total | 875.702 | 903.707 | TBD |
| Average (rounded) | 291.901 | 301.236 | TBD |
The calculation of the 2024 COLA was based on the following formula:
(301.236 – 291.901) / 291.901 x 100 = 3.2% COLA
Similarly, the final average for 2024 will be computed once the September 2024 CPI-W figure is released, and this will determine the COLA for 2025.
The Impact on Social Security Payments
The 2025 COLA will be applied to Social Security checks starting in January. If the projected 2.5% increase holds, beneficiaries will see a small bump in their payments. For example, a retiree receiving $1,500 per month would receive an additional $37.50, making their new monthly benefit $1,537.50.
Payments may arrive earlier than usual due to holidays or weekends, but the COLA will go into effect as scheduled.
Social Security Wage Base for 2025
Along with the COLA, the Social Security wage base (the maximum amount of earnings subject to Social Security taxes) is expected to increase. According to projections, the 2025 wage base will rise to $174,900, up from $168,600 in 2024.
For high earners, this means that income above the wage base limit will not be subject to Social Security taxes, but those who earn below the cap will see a larger portion of their earnings taxed for Social Security.
| Year | Wage Base |
|---|
| 2023 | $160,200 |
| 2024 | $168,600 |
| 2025 | $174,900 (Projected) |
What This Means for Retirees
The COLA ensures that retirees maintain their purchasing power in the face of inflation. While the 2025 COLA is slightly lower than previous years, the adjustment will still provide a welcome boost to Social Security payments. High earners may see an increase in their Social Security tax bill due to the rise in the wage base.
Conclusion
The official 2025 COLA will be announced on October 10, 2024, at 8:30 am ET, reflecting the economic conditions of the past year. Retirees can expect this adjustment to impact their January 2025 payments. Keep an eye on the SSA’s website for the official announcement and further details.
