If you receive Social Security benefits, you’ve probably heard of the Cost-of-Living Adjustment (COLA). This yearly increase is designed to help you keep up with rising prices due to inflation. In simple terms, COLA ensures that your monthly checks still go as far as they did the year before.
Let’s break down how it works, how it’s calculated, and what to expect in 2025.
What Is COLA and Why Is It Important?
COLA stands for Cost-of-Living Adjustment. The Social Security Administration (SSA) uses it to increase benefits every year, so people who rely on Social Security don’t lose their purchasing power as prices rise.
COLA is important because it helps:
- Keep up with rising grocery, gas, housing, and medical costs
- Ensure your monthly benefits stay valuable over time
- Protect the financial health of retirees, disabled individuals, and survivors
How Is COLA Calculated?
The yearly COLA is based on inflation, specifically the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Here’s how it works:
- The CPI-W measures inflation — how much prices have gone up for common goods and services
- The SSA compares the CPI-W in the third quarter (July–September) of the current year with the same period the previous year
- If prices go up, so does your Social Security payment
A Quick Look at COLA Over the Past Years
COLA increases change every year based on inflation levels. Here are some examples:
- December 2018: 2.8% COLA → Received in Jan 2019
- December 2019: 1.6% COLA → Received in Jan 2020
- December 2020: 1.3% COLA → Received in Jan 2021
- December 2021: 5.9% COLA → Received in Jan 2022
- December 2022: 8.7% COLA → Received in Jan 2023
- December 2023: 3.2% COLA → Received in Jan 2024
- Projected December 2024: 2.5% COLA → To be received in Jan 2025
As you can see, the COLA went up a lot in 2022 and 2023 due to high inflation, but it is expected to slow down in 2025 as inflation becomes more stable.
What the 2025 COLA Means for You
If the 2025 COLA is 2.5%, your Social Security check will increase by that amount starting in January 2025.
For example:
- If you receive $1,800 per month, a 2.5% raise adds about $45/month
- New monthly total: $1,845
While that may not sound huge, it adds up over the year and helps cover rising living costs.
Why the COLA System Matters
Since 1975, COLA has helped Social Security benefits stay in step with inflation. Without it, the real value of your check would shrink each year, making it harder to afford essentials.
COLA is automatic — you don’t need to apply for it. Every year, the SSA reviews inflation data and applies the adjustment if needed.