Will the 2025 Social Security COLA Affect Future Retirees?

The 2025 Social Security cost-of-living adjustment (COLA) could influence future retirees by preserving the purchasing power of their benefits. COLA adjustments are designed to counteract inflation, ensuring that the primary insurance amount (PIA) reflects current economic conditions. Higher COLA raises today mean future retirees could begin collecting benefits that reflect a larger baseline, since adjustments compound over time. However, COLA does not change how benefits are initially calculated based on earnings history, so its effect is indirect.

A financial advisor can help you plan for Social Security and incorporate your benefits into a retirement income plan that is designed to meet your needs. Connect with an advisor today.

How Social Security Benefits Are Calculated

Social Security looks at your lifetime earnings to figure out your benefit. It takes your highest 35 years of income, adjusts those years for inflation and averages them to come up with your average indexed monthly earnings (AIME).

That number is then put into a formula that produces your primary insurance amount (PIA). The formula is progressive, meaning it replaces a bigger share of income for lower earners and a smaller share for higher earners.

Your actual benefit depends on when you decide to start collecting. If you claim at your full retirement age, you’ll receive 100% of your PIA. Taking benefits as early as age 62 reduces the monthly amount, since you’ll be expected to receive checks over a longer period.

On the other hand, delaying past your full retirement age increases your benefit through “delayed retirement credits,” which raise your monthly check by a set percentage each year you wait, up until age 70. This system is designed so that, on average, the total lifetime value remains roughly the same, whether you claim early, on time or later.

What Is COLA?

The Social Security cost-of-living adjustment (COLA) is a mechanism that helps maintain the purchasing power of Social Security and Supplemental Security Income (SSI) benefits. It’s an important feature of the Social Security program, designed to provide a safeguard against inflation.

Each year, the COLA is determined based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the previous year to the third quarter of the current year.

When there is an increase in the CPI-W, beneficiaries receive a corresponding percentage increase in their Social Security benefits. This adjustment is automatic and helps beneficiaries keep pace with inflation. However, if there is no increase in the CPI-W, there will be no COLA for that year.

How Much Was the 2025 COLA?

The Social Security Administration typically announces the following year’s COLA in October. In 2025, benefits increased by 2.5% from 2024. For retired workers, this translated into an average benefit increase of roughly $49 per month starting in January 2025. Supplemental Security Income (SSI) recipients saw the same 2.5% adjustment, lifting the maximum federal monthly benefit to $967 for an individual and $1,450 for a couple.¹

The Senior Citizens League, an advocacy group for seniors, publishes COLA projections throughout the year. The group is currently projecting a 2.7% COLA in 2026.²

How Does COLA Impact Future Retirees?

For those who have not yet claimed Social Security, cost-of-living adjustments (COLAs) help maintain the purchasing power of future benefits. Each year that inflation is measured in the CPI-W, the adjustment is applied to benefit amounts tied to the primary insurance amount (PIA). This means that by the time someone claims, their benefit reflects inflation rather than being locked in at earlier values.

If claiming is delayed beyond full retirement age, benefits grow further through delayed retirement credits (DRCs). These credits increase the benefit by a set percentage for each month of delay, up to age 70. Because COLAs continue to apply during the waiting period, the eventual benefit amount reflects the combined effect of both annual inflation adjustments and the additional growth from DRCs.

Together, these factors can make delaying especially powerful for those expecting a longer retirement.

Bottom Line

Social Security benefits are shaped by both lifetime earnings and ongoing adjustments that account for inflation. While the formula for calculating benefits is fixed, annual COLAs raise the baseline over time, and delayed retirement credits further amplify monthly payments for those who wait. Understanding how these mechanisms interact provides context for when to claim benefits and how they fit into a broader retirement income strategy.

Social Security Planning Tips

• Planning for Social Security benefits can be complex, but using the right tools can make it easier. The SmartAsset Social Security calculator is an invaluable resource for estimating your future benefits. This calculator accounts for your earnings history, expected retirement age and other factors to provide a personalized estimate of your Social Security income.
• A financial advisor can help you plan for Social Security and decide when the right time may be to start claiming your benefits. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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