Prediction: 2025's Social Security COLA Won't Be Terrible News After All

Maurie Backman, The Motley Fool

Millions of older Americans rely on their monthly Social Security benefits to make ends meet. And thankfully, those benefits are eligible for an annual cost-of-living adjustment, or COLA.

The purpose of COLAs is to help Social Security beneficiaries maintain their buying power in the face of inflation. Over time, living costs tend to rise naturally.

Keeping Social Security payments stagnant would likely force those who rely on them into poverty through the years. However, because those benefits get a boost from year to year in line with inflation, seniors can keep up with their expenses to a reasonable degree, even if Social Security is their primary income source.

A smiling person holding a dog.
A smiling person holding a dog.

Image source: Getty Images.

Most seniors on Social Security want their monthly benefits to rise as much as possible from one year to the next. And for this reason, many older Americans could be in for a world of disappointment in the new year.

Initial estimates are calling for a 2.5% Social Security COLA in 2025. That would make 2025's raise the smallest COLA to arrive in years and could put a lot of seniors in a tough financial spot.

While it might seem like all bad news with regard to 2025's Social Security COLA, things actually aren't as bleak as they might seem. Here's why.

There's still time for that number to change

Social Security's official 2025 COLA is unlikely to be substantially higher than 2.5%. But could it end up coming in higher than 2.5? Yes.

That number is merely an estimate, based on inflation data from July and August. An official COLA won't be calculated until inflation data from September becomes available.

If inflation ticks upward this month, seniors on Social Security could end up with a raise in 2025 that's higher than 2.5%. While it may not be much higher, every little bit helps.

A smaller COLA means inflation is easing up

Social Security COLAs are tied directly to inflation. Therefore, when one goes down, it indicates that the other is down, too. In other words, a smaller 2025 COLA means inflation has been cooling. If that trend continues, seniors on Social Security could gain buying power in the form of lower prices in stores and in general.

It's not a worst-case scenario

The idea of a smaller Social Security raise in 2025 might seem disappointing. But remember, next year's COLA isn't set in stone. Even if 2.5% ends up being the official number, it's not so terrible, given that it's also indicative of slowing inflation.

If you're worried about getting by on a smaller raise, make changes that allow you to stretch your Social Security income further. These could include:

  • Downsizing to a smaller home

  • Relocating to an area of the U.S. where housing and living costs are cheaper

  • Getting rid of a car if you live in a walkable area or one with public transportation

  • Trading your current car in for a cheaper one if your driving needs are minimal

  • Reviewing Medicare plan choices every year to see if there's a more cost-effective option, which you can do from Oct. 15 through Dec. 7 during open enrollment

If you're savvy about managing your expenses, you may find that you're able to make your 2025 Social Security COLA work for you -- no matter what it amounts to.

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