2 Social Security Cost of Living Adjustment (COLA) Changes Retirees Really Want to See

Social Security’s cost of living adjustment (COLA) for 2025 was just 2.5%. This is well below the 3.2% achieved by retirees last year and much less than many expected. High inflation in recent years has made it difficult for retirees to meet their basic expenses, and many fear this situation will only get worse in 2025.

For years, groups like the Senior Citizens League (TSCL) have been calling for changes to how the government calculates COLAs, but so far there has been no movement. The following two options, while far from safe, could significantly improve retirees’ finances and help Social Security maintain its purchasing power over time.

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1. Establish a minimum COLA of 3%

Currently, Social Security COLAs are tied to the rate of inflation as determined by annual changes in the third quarter Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI- W). The third quarter 2024 average was 2.5% higher than the third quarter 2023 average, hence the 2.5% COLA.

But many believe that this is not enough. TSCL found that Social Security benefits have actually lost about 20% of their purchasing power since 2010, largely due to insufficient COLAs. The establishment of a mandatory floor of 3% would increase the probability that the purchasing power of Social Security will stabilize at least over time.

It’s also possible that in some years with lower inflation, like 2024, a mandatory 3% COLA could increase Social Security’s purchasing power a bit. But it’s unclear whether the government would actually allow it.

2. Base COLAs on CPI-E instead of CPI-W

One of the strangest things about calculating the Social Security COLA is that the CPI-W actually excludes retiree households. It focuses specifically on urban households with at least half of their income coming from an office job or hourly wage. People aged 62 and over are covered by a separate index called the Consumer Price Index for the Elderly (CPI-E).

Many believe, correctly, that the Social Security Administration should use the CPI-E instead of the CPI-W to calculate benefits because the CPI-E more accurately reflects seniors’ spending. This may be very different from workers’ spending habits.

TSCL found that if the government had used CPI-E instead of CPI-W, retirees would have gotten larger COLAs in seven out of 10 years between 2014 and 2024. This would have earned the average beneficiary nearly $2,700 $ more than that. time.

Between this idea and the mandatory 3% COLA floor, the move to CPI-E is more likely to happen. Some politicians have floated this idea over the years, but so far it has not gained traction.

Are these changes likely to occur?

Many retirees – and workers, for that matter – are curious about whether the government will actually reform Social Security or its COLAs. Although we cannot predict the future, it is safe to say that it is not likely in the near future.

Social Security is facing a funding crisis, with its trust funds expected to run out within about a decade. Without government intervention, this would result in a benefit reduction of around 23%. It’s unlikely it will go that far. Social Security has been in trouble before and the government has made changes to keep it going.

But he probably won’t make any changes that would increase Social Security’s COLA at this time, because that could drain trust funds even faster. It is more likely that any changes to COLAs will occur alongside a government plan to increase future funding for Social Security.

This is all speculation at the moment. All we can do, besides making our legislators understand that Social Security is an important issue to us, is build up our own savings as much as possible. The less we depend on Social Security, the less affected we will be by future events.

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