This 2025 Social Security COLA Phenomenon Hasn't Happened In Decades

The 2025 Social Security cost-of-living adjustment was announced on October 10, 2024, with the Social Security Administration confirming a 2.5% COLA rate for 2025. Before the announcement, analysts, advocacy groups, and financial pundits pondered what the 2025 changes to Social Security could mean for retirees. Specifically, they focused on how 2025's COLA rate would or would not account for the inflation the country and Social Security benefit recipients must contend with.

Now that the new COLA has been revealed to be in line with general predictions of 2.5%, people may wonder: Is this good news, or bad news? What's clear is that it's the fourth year in a row that the COLA rate (which is meant to keep pace with inflation and consequent rising prices) has been 2.5% or above, a phenomenon that hasn't happened in decades. The last time it happened was in the mid-1990s, between 1994 and 1997. Let's explore why this phenomenon can be considered not-terrible news on top of not-great news.

As noted, 2025's COLA increase of 2.5% means the cost-of-living adjustment has been 2.5% or above for four consecutive years: 5.9% in 2022, 8.7% in 2023, 3.2% in 2024, and 2.5% in 2025. When this last happened 27 years ago, from 1994 to 1997, the COLA rates were much closer: 2.6% in 1994, 2.8% in 1995, 2.6% in 1996, and 2.9% in 1997.

On its face, it looks like current COLA percentages are dropping rapidly, -6.2% in two years' time. It's not like people need less money to live every year, and 2.5% seems measly compared to 8.7% (in 2023). However, remember that COLA is the adjustment made to Social Security's base amount to account for yearly rates of inflation. The Social Security Administration calculates COLA rates by comparing third-quarter data from the previous and current year's Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The percentage increase, decrease, or lack thereof between the comparison quarters determines the rate Social Security arrives at for the year's COLA. A lower number may only seem like beneficiaries are receiving less money than previous years, but that's only because there's less inflation to contend with, per official national data. In theory, the lower the COLA rate, the lower the rate of inflation, which is a good thing.

According to the Social Security Administration, the average COLA rate over the last decade has been 2.6%, which includes the 8.7% in 2023 and 0.0% in 2016 (and 0.3% in 2017). In fact, COLA has been zero three times since 1975, with Social Security recipients receiving no cost-of-living adjustment in 2010, 2011, and 2016.

With regard to the current four-year stretch of a Social Security cost-of-living adjustment of 2.5% or above, 2025's COLA of 2.5% is actually below the average. As for the higher COLA rates from 2022 and 2023 (5.9% and 8.7%, respectively), those reflected the soaring inflation the country was facing. Now COLA is starting to return to its average, which means inflation rates are getting "better," but they've yet to take a turn for the great.

For example, you likely have felt acutely aware of the pressures of sustained inflation (as well as shrinkflation) while grocery shopping the last few years, and retirees living paycheck to paycheck on fixed incomes feel that pinch even more so. This said, while it isn't usual to hope against receiving a yearly raise, it may be in everyone's best interest to hope the COLA raise streak of 2.5% or above finally breaks in 2026. (Read about five factors that could reduce your Social Security check.)