Social Security is a critical program for most Americans, with millions relying on it to stay above the poverty line. According to the Center on Budget and Policy Priorities, it lifts around 22.7 million people out of poverty annually. Surveys from Gallup over the years have also shown that a high percentage of retirees depend on their Social Security benefits to cover part of their expenses each month.

Given the significance of these monthly payments for the financial security of over 67 million beneficiaries, the announcement of the annual cost-of-living adjustment (COLA) by the Social Security Administration in October is a highly anticipated event each year.

Before 1975, COLAs were not based on a specific formula and were determined arbitrarily by special sessions of Congress. Only 11 COLAs were passed for Social Security beneficiaries between 1940 and 1975, and none were provided during the entire decade of the 1940s. Since 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has been used as the measure for determining annual adjustments to Social Security benefits. The CPI-W tracks the prices of a variety of goods and services, with different weightings assigned to various categories. This calculation results in a single figure that can be compared to previous months or years to determine whether there has been inflation or deflation in the price of goods and services.

While it is still early in the year and the CPI-W readings for July have not yet been released, various organizations have already started making estimates for Social Security’s cost-of-living adjustment (COLA) for 2025.

In February, the Congressional Budget Office (CBO) released its annual Budget and Economic Outlook for Social Security’s Old-Age and Survivors Insurance Trust Fund, which covers benefits for retired-worker beneficiaries and survivors of deceased workers. The CBO projected a 2.5% COLA for Social Security in 2025 based on their analysis and economic outlook for the program.