The Social Security Administration has set its 2025 cost of living adjustment at 2.5%, the smallest annual COLA increase since 2021. Although inflation has eased from its pandemic-era highs, some advocates for older Americans say the modest increase in the Social Security benefits mean U.S. retirees are at risk of losing financial ground.

The 2025 COLA will add an average of about $50 to each monthly benefit check, the administration said.

Each fall, the Social Security Administration announces its annual COLA, which is based on a metric known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures the average change in prices that certain workers pay for a certain basket pay for deliveries of goods in the third quarter or July to September.

Inflation has fallen sharply since hitting a 40-year peak in June 2022, but some seniors groups argue that Social Security's annual COLA is not keeping up with the financial needs of older Americans. That's because the CPI-W tracks workers' spending and therefore doesn't accurately capture retirees' higher health care costs, which has weakened seniors' purchasing power, they say.

“Many seniors will say this isn't really enough to keep up with prices,” said Bill Sweeney, AARP's senior vice president of government affairs.

How COLA 2025 will change your benefits

The 2.5% COLA increase will increase the average Social Security payment by about $50 starting in January, the agency said Thursday.

According to the Social Security Administration, the average monthly benefit payment for retirees this year is about $1,927. After the 2.5% increase, this amount will increase to $1,976 per month. Married couples who both receive Social Security will see their average benefits increase to $3,089 per month next year from the current $3,014.

About 68 million Social Security recipients will see the new 2025 amounts starting with January 2025 payments. An additional 7.5 million people receiving Supplemental Security Income (SSI) will receive their increased payments beginning Dec. 31, 2024, the agency said.

Some people receive both Social Security benefits and SSI, a program for people with disabilities and older, low-income Americans.

Find out when you'll receive the 2025 COLA increase here

Social Security recipients will receive the first COLA increase for 2025 in their January benefits. Monthly payment dates are based on a person's date of birth:

• Individuals born between the 1st and 10th of their birth month will receive their first COLA increase on January 8th
• Those born between the 11th and 20th of their birth month will receive the COLA bump on January 15th
• Recipients born between the 21st and 31st of their birth month will receive the new COLA on January 22nd

Meanwhile, people who began receiving Social Security before May 1997 or receive both Social Security and SSI will receive their new Social Security COLA on January 3rd.

Individuals receiving SSI will receive their new 2025 COLA with their payment on December 31, 2024.

Silver linings

Over the past three years, seniors' cost of living adjustments have been higher than average as inflation has been well above the Federal Reserve's annual target of 2%. But now that inflation is approaching the Fed's target, the latest annual COLA reflects the silver lining of falling prices, according to AARP's Sweeney.

“We mixed good news with bad news. The reason the COLA is so low is because inflation is under control,” noted Kelly LaVigne, vice president of consumer insights at Allianz Life. “Here's the hard part: Great, inflation is under control, but seniors don't really feel like they've been caught up.”

Meanwhile, Social Security's COLA could remain relatively low in the coming years, assuming inflation remains near the Fed's target, LaVigne added. And that's been the norm, because according to the Senior Citizens League, COLA has averaged about 2.6% over the last 20 years.

For 2024, Social Security recipients received a 3.2% COLA. In 2023, the annual adjustment reached 8.7% – a near 40-year high as inflation rose sharply – while the COLA was 5.9% in 2022.

Impact of COLA on Social Security

“The automatic annual cost of living adjustment is one of the most essential and unique features of Social Security. It's designed to ensure that benefits don't diminish over time, said Nancy Altman, president of Social Security Works, an advocacy group.

However, she added that the current formula does not fully cover the expenses of older Americans. This could be remedied if the COLA were determined by a different measure of inflation, known as the Consumer Price Index for Older Consumers (CPI-E), which reflects price changes based on spending by people age 62 and older.

Sherri Myers, an 82-year-old resident of Pensacola City, Florida, said the cost-of-living increase from Social Security she receives in January will “not impact” her ability to manage her everyday expenses.

Despite the raise, she is looking for work to supplement her retirement income, which consists of a small pension and her Social Security benefits.

“Inflation has eaten up my savings,” she said. “I have nothing to fall back on – the cushion is gone.”

contributed to this report.