Smaller COLA Increase Predicted for 2025 Social Security and Veteran Benefits

As the close of 2024 approaches, anticipation builds among Social Security recipients for the announcement of the 2025 Cost of Living Adjustment (COLA). This annual increase aims to align benefits with inflation, ensuring that beneficiaries maintain their purchasing power in an economy with rising prices. The Social Security Administration (SSA) bases the COLA on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures price changes in essential items such as food, energy, and transportation.

Historically, the SSA reviews CPI-W data from the third quarter to determine the following year’s COLA. In the recent past, there have been significant COLA adjustments due to heightened inflation, with increases of 5.9% in 2022, 8.7% in 2023, and 3.2% for 2024. However, experts now anticipate a more moderate COLA increase of approximately 2.5% for 2025. This proposed increase would be the smallest since the 1.3% adjustment in 2021, but it is projected to still align Social Security payments with current price trends.

If the forecasted 2.5% adjustment occurs, the average monthly Social Security payment for retirees—currently standing at $1,907 in 2024—would rise by roughly $48, totaling an estimated $1,955 per month. These COLA adjustments are crucial for the living standards of millions of Americans, particularly those relying on fixed Social Security incomes. Although inflation has decreased slightly in recent months, maintaining benefits’ alignment with cost increases is vital to prevent financial deterioration for recipients.

The announcement of the official 2025 COLA is expected on October 10, with the new rates effective from January. Beneficiaries are advised to monitor the SSA’s updates closely to understand how much their payments will increase in the new year.

In a parallel development, veterans can also anticipate a similar modest COLA increase of about 2.5%, starting January 1, 2025. Per recent legislation, the Department of Veterans Affairs will apply the same cost-of-living increase as the SSA, impacting veterans’ disability compensation, survivor’s pensions, and Dependency and Indemnity Compensation (DIC). A veteran currently receiving $1,500 monthly could see an additional $38, based on the final COLA percentage.

However, veterans who joined the military from August 1, 1986, and opted for the Career Status Bonus (CSB/Redux retirement plan) will experience a slightly reduced COLA increase, diminished by one percentage point. This group previously accepted a lump sum in exchange for reduced monthly payments.

The anticipated smaller COLA increase for 2025 reflects a broader cooling in inflationary pressures compared to recent years. The definitive COLA figure will be officially announced in October 2024, following the final review of CPI-W data, to ensure that benefits keep pace with the cost of living, albeit at a slower growth rate.