July CPI Report Offers Early 2025 COLA Estimates

The first of three numbers the Social Security Administration (SSA) will use to determine the 2025 cost-of-living adjustment (COLA) is in, and it points to a more modest increase in monthly benefit payments next year.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) rose by 2.9 percent in July compared to a year ago. The COLA is based on how much that federal inflation gauge changes in July, August and September from one year to the next. The final figure for 2025 will be announced in October.

Based on 2023 inflation figures, the COLA for 2024 increased monthly benefits by 3.2 percent. Alicia Munnell, director of the Center for Retirement Research at Boston College, says continued cooling of inflation could produce a 2025 adjustment of 2.6 percent to 2.9 percent.

“People are still not happy because prices are high,” she says, but “I think we’re working our way out of this inflation situation and the harm that it did.”

Sri Reddy, senior vice president for retirement and income solutions at Principal Financial Group, is also optimistic. “Inflation and core inflation have both appeared to come down and normalize in the first half of the year through June at about 3 percent,” Reddy says. “While July CPI results have come down further, barring any significant macro events, the Social Security COLA for next year should be between 2.75 and 3.25 percent.”

A COLA that matches the 2.9 percent July figure would increase the average Social Security retirement benefit — about $1,870 a month in June 2024 — by $54 a month starting in January 2025. The average monthly survivor benefit ($1,508 in June) would go up by $44, and the average Social Security Disability Insurance (SSDI payment ($1,538 in June) would tick up by $45.

The 2024 COLA boosted benefits by $59 a month for the average retiree. The annual adjustment declined sharply last year in tandem with cooling inflation. The 2023 COLA of 8.7 percent, a byproduct of the sharp spike in consumer prices the year before, was the largest percentage increase since 1981.

“Social Security is generally the only inflation-protected source of income for seniors in retirement,” says David Certner, legislative counsel and legislative policy director for AARP. “Whether the cost of living rises significantly or by modest amounts, AARP has fought for years to protect the COLA, which helps seniors keep up with rising prices throughout their retirement years.”