The Social Security COLA for 2025 is 2.8 Percent. Not Enough? Too Much?

The Social Security Cost of Living Adjustment is 2.8 percent.

Happy with 2.8 Percent?

The Wall Street Journal reports Social Security Is Giving Retirees a 2.8% COLA Bump for 2026

Starting in January, the average monthly check for the nation’s 53 million retired recipients will be $2,064, up $56 from this year.

The annual COLA is based on a Labor Department inflation measure that tracks how much Americans paid for a range of goods and services in the third quarter, compared with a year ago.

Inflation this year has been far below the surge that pushed the COLA to 8.7% in 2023, its highest in more than four decades. But the modest increase in the COLA for next year reflects a recent uptick in inflation that has Americans paying more for items including coffee, ground beef, produce, electricity and used cars and trucks.

A September poll by AARP found that 72% of adults ages 50 and older said they would need at least a 5% annual increase in benefits to keep up with rising prices. Less than a quarter said a 3% COLA would cover the rise in their costs.

With inflation close to zero from 2010 to 2021, “retirees are in a state of constant sticker shock,” that fuels dissatisfaction with the COLA, said Joel Eskovitz, senior director of Social Security and Savings at AARP.

An experimental inflation gauge by the Labor Department that aims to capture the rate of inflation faced by people ages 62 and older has recently been running slightly ahead of the inflation index that the COLA is based on. The gauge gives greater weight to medical costs, among other adjustments, but the Labor Department warns it might not accurately capture the use of senior discounts, among other limitations.

For many retirees, the annual COLA raise will be somewhat eaten up by higher premiums for Medicare Part B, which pays for doctor’s and outpatient visits and is typically deducted from benefits checks.

Next year, the standard Part B premium is slated to rise $21.50 a month, from $185 to $206.50, according to estimates Medicare’s trustees released in June. That would consume about 38% of the average $56 projected COLA raise.

The Centers for Medicare and Medicaid Services typically releases the new Part B premium in the fall. The Social Security Administration also said Friday that the maximum amount of earnings subject to the Social Security tax will increase to $184,500 in 2026 from $176,100 in 2025.

Will 2.8 Percent Cover Cost of Living?

Of course not, if calculated properly. Most older Americans own their own home and the CPI on which the COLA is based does not include property taxes or homeowners’ insurance.

The latter is soaring everywhere. The former is capped in states like California but rising big elsewhere.

A COLA Cap

The Committee for a Responsible Federal Budget CRFB wants to cap the COLA for high earners.

Please consider A Social Security COLA Cap

Social Security is rapidly approaching insolvency. The retirement trust fund is seven years from exhaustion, and the theoretically combined trust funds are nine years from running out. Without legislative action, retirees will face an estimated 24 percent across-the-board benefit cut in late 2032. Restoring long-term solvency will require slowing the growth of benefits, raising revenue, or some combination.

Under the Social Security program, benefit levels are increased every January through an annual Cost-of-Living Adjustment (COLA), which is meant to ensure benefits keep pace with inflation. All beneficiaries receive this annual COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

In the past, several plans have proposed modifying COLAs to lower future program costs. A common proposal involves using a more accurate measure of inflation known as the chained CPI (C-CPI-U) to calculate COLAs. Another proposal would means-test the COLA to eliminate increases in years beneficiaries have high incomes.

This Trust Fund Solutions Initiative white paper offers a new option to cap COLAs at the amount received by a relatively high earner. Under the proposed COLA cap, all beneficiaries would continue to receive an annual COLA, but that COLA would be limited in size for those with the largest benefits (and highest lifetime income). A COLA cap could be enacted in place of or in combination with other COLA changes.

Under this Trust Fund Solution, the COLA would be limited each year to the amount received by a beneficiary with a relatively high benefit level. All beneficiaries would continue to receive a COLA under this proposal – many would receive the same COLA as under current law – and initial benefits would continue to be indexed to wage growth as under current law. However, beneficiaries that would otherwise receive a COLA above the cap – retirees with the largest benefits and the highest lifetime incomes – would instead receive a COLA equal to the cap.

Solvency Extension

A COLA cap would extend solvency at the expense of those with the highest benefit levels.

Here’s the kicker: Setting the cap somewhere between the median and 90th percentile of benefits could close between one-twentieth and one-quarter of Social Security’s 75-year solvency gap.

To go beyond closing a mere 10-25 percent of the gap, benefits would have to be reduced more, or more tax revenue collected.

Congress is reluctant to do either, so don’t expect any changes.

Meanwhile, Social Security recipients are already in the hole vs better calculations of a COLA.

Not Enough? Too Much?

Related Post

August 11, 2025: Is Homeowners Insurance Understated in the CPI? Shop Around!

Our Insurance went up by $2,000. Then another $2,000. Here’s our story.

What’s the Insurance Weight?

The BLS says shelter is 35.473 of the CPI. Of that, Tenants’ and household insurance is allegedly 0.414 percent.

Sound right?

If you own a home, what percent of your income is spent on your homeowners’ insurance?

Under 1/2 of 1 percent?

Click on the above post for more details.