The estimated cost-of-living adjustment (COLA) for seniors in 2025 is decreasing as inflation rates stabilize, based on recent calculations.

According to the consumer price index report from August released on Wednesday, the 2025 Social Security COLA is projected to be 2.5%. This is a decrease from last month’s estimate of 2.6% and lower than the 3.2% increase observed in 2024, as stated by Mary Johnson, a consultant specializing in Social Security and Medicare policy who monitors these estimates. With a 2.5% COLA, the average monthly benefit for retirees, currently $1,870, would increase by approximately $46.80 (rounded).

However, this boost may not significantly aid retirees as expenses for essential goods and services remain elevated, Johnson noted.

“The 2025 COLA will be the smallest adjustment for Social Security recipients since 2021, while inflated prices for essentials such as housing, meat, and auto insurance continue to rise,” she explained.

The Census Bureau has also reported that a growing percentage of seniors have been falling into poverty each year since 2020.

Rise in Senior Poverty Rates

Annual COLAs are designed to help Social Security recipients keep up with inflation, but a study from The Senior Citizens League (TSCL) published in July indicates this has not been happening.

Since 2010, Social Security benefits have lost approximately 20% of their purchasing power as the costs for goods and services most frequently purchased by seniors have risen faster than inflation, according to TSCL. This means that if a retired couple spent $100 on groceries in 2010, they would only be able to purchase about $80 worth now.

“To restore lost value, payments for retired workers would need to increase by $4,440 each year or $370 each month,” TSCL added.

According to the Census Bureau’s supplemental poverty measure released on Tuesday, seniors aged 65 and older are the only demographic group that has experienced an annual increase in poverty since 2020. This supplemental measure accounts for both cash and noncash benefits, yet deducts essential expenses like taxes and healthcare costs while adjusting for regional housing costs.

In 2023, 14.2% of seniors were considered in poverty, a slight rise from 14.1% in 2022, 10.7% in 2021, and 9.5% in 2020. This represents the highest percentage since 14.5% was recorded in 2016.

Impact of Medicare Part B Premium Increases on COLA

Over the past two decades, Medicare Part B premiums—covering necessary medical services and some preventive services—have grown at a rate that is twice that of COLA, according to Johnson. On average, Part B premiums have increased by 5.5% annually, whereas COLAs have risen by less than half that, at about 2.6%. It’s important to note that COLA does not account for increases in Medicare Part B premiums.

This fall, the anticipated 2025 Medicare Part B premium is expected to be $185 monthly, up from $174.70 this year—a 5.9% increase, surpassing the projected 2.5% COLA rise.

“As Part B premiums rise faster than Social Security COLAs, they take up a larger portion of each monthly Social Security payment,” she noted. The Social Security Administration automatically deducts the Part B premium and any voluntary tax withholdings from monthly benefit checks.

Medicare provides health coverage to approximately 67.4 million individuals, with about 89.5% of those aged 65 and older, as reported by the Centers for Medicare and Medicaid Services.

Understanding How COLA is Calculated

The Social Security Administration determines its annual COLA based on the average yearly changes in the consumer price index for urban wage earners and clerical workers (CPI-W), measured from July through September. Therefore, inflation data during these months is particularly critical.

The CPI-W generally reflects the overall index reported monthly by the Labor Department, although there can be slight variations. Last month, the total 12-month consumer price index increased by 2.5%, while the urban wage earners’ index rose by 2.4%.

However, Johnson points out a notable irony: “the CPI-W does not include data from retired individuals aged 62 and over, who are precisely the group the Social Security COLA aims to assist.”

CPI-W computes inflation based on spending patterns of workers under 62. This poses an issue as younger workers allocate about 7% of their budget to healthcare, but studies show that older adults usually spend 15% or more of their income on healthcare.

2024’s COLA Overview

In 2024, older adults received a significant increase of 3.2% in their benefits.

At the start of the year, Social Security checks were raised to assist recipients in staying ahead of inflation. This adjustment resulted in an average increase of $59 per month for retirees.

The Social Security Administration is set to reveal the cost-of-living adjustment (COLA) for 2025 on October 10.