The cost-of-living adjustment (COLA) for Social Security in 2025 is shaping up to be one of the lowest in recent years, and that’s bad news for retirees trying to stay afloat. Inflation may be cooling, but the necessities older Americans rely on remain stubbornly expensive. According to new estimates, next year’s COLA will likely be around 2.5%, down from the previous estimate of 2.6% and far below the 3.2% increase from 2024.
To put that into perspective, if you’re receiving the average Social Security benefit of $1,870 a month, this adjustment would add only about $46.80 to your check. That’s hardly enough to offset rising costs in areas like housing, healthcare, and groceries—expenses that disproportionately impact retirees.
The sad reality is, Social Security just isn’t keeping up. For years now, retirees have seen the purchasing power of their benefits shrink. A report from The Senior Citizens League (TSCL) highlights that Social Security benefits have lost 20% of their buying power since 2010. In simple terms, what $100 could buy you back then only stretches to about $80 today. To regain that lost value, the average payment would need to rise by about $370 a month. Unfortunately, we’re not seeing those kinds of increases.
Why Are Seniors Falling Behind?
One of the reasons Social Security is losing its value for older Americans is that the way the COLA is calculated doesn’t fully account for the types of expenses retirees face. The Social Security Administration uses something called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine how much to adjust benefits each year. The problem is, the CPI-W reflects the spending habits of younger, working adults—not retirees.
Younger adults spend their money differently, focusing less on healthcare and more on things like transportation or recreation. In contrast, retirees spend a significantly larger chunk of their income on healthcare, with estimates suggesting healthcare accounts for 15% or more of a retiree’s budget. However, this critical difference isn’t factored into the current COLA calculation, leaving seniors exposed to rising medical costs.
And the problem doesn’t end there. The Census Bureau recently reported that more seniors are slipping into poverty each year. As of 2023, 14.2% of adults aged 65 and older were considered to be living in poverty. That’s up from 9.5% just three years ago, and the highest rate we’ve seen since 2016. For many, Social Security is the only thing keeping them afloat, and when those payments fail to keep up with inflation, it’s no surprise that more retirees are struggling to make ends meet.
Medicare Costs Add to the Burden
Another major issue is Medicare, particularly the Part B premiums. Over the past two decades, Medicare Part B premiums have grown at a rate that’s twice as fast as COLA increases. Part B covers essential medical services and preventive care, and premiums have increased by about 5.5% per year. In contrast, the average COLA over the same period has been just 2.6%.
This mismatch means that as Part B premiums rise, they eat into the Social Security checks retirees depend on. For example, Medicare’s trustees report that Part B premiums are expected to jump to $185 a month in 2025, up from $174.70 this year. That’s a 5.9% increase—more than double the 2.5% COLA many are expecting.
When premiums grow faster than COLA, retirees end up with less take-home income to cover their other expenses. The Social Security Administration automatically deducts Part B premiums and any voluntary withholdings for taxes from your monthly benefit, so you may not even notice just how much these costs are chipping away at your check.
What Does This Mean for Retirees?
Unless something changes, the outlook for retirees isn’t great. As inflation eases, the COLA adjustments will continue to shrink, but that won’t make life any cheaper for those on fixed incomes. Even as overall inflation goes down, the specific costs that hit retirees hardest—like healthcare, housing, and food—are still rising, and Social Security isn’t equipped to deal with that.
The Social Security Administration will announce the official 2025 COLA on October 10, but based on current trends, it’s unlikely to offer much relief. If you’re depending on Social Security as your primary source of income, it’s crucial to start planning now for how you’ll manage these rising costs. Consider looking into ways to supplement your income, such as part-time work, investment opportunities, or even more affordable living arrangements. Additionally, be mindful of healthcare costs, and explore any options you have to minimize your out-of-pocket expenses.
