The 2025 Social Security COLA Is Doing Something It Hasn't Done for 28 Years

When Social Security retirees receive their Cost-of-Living Adjustment (COLA) in 2025, they'll experience something that no retiree has for a generation. Something unprecedented has occurred with the 2025 COLA which has not happened since 1997, and it's not great news for seniors.

Here's what's happening next year, along with some details about what this unusual event means for America's retirees.

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It's been decades since this COLA phenomenon happened

When the 2025 COLA comes, it will be the first time since 1997 that retirees have been given a raise of 2.5% or higher for four consecutive years. Here are the Social Security raises seniors have received over the past couple of years:

• January 2022 -- 5.9%
• January 2023 -- 8.7%
• January 2024 -- 3.2%
• January 2025 -- 2.5%

The last time that COLAs were at such a high level for a sustained period of time was from 1994 to 1997 when the benefits increases looked like this:

• January 1994 -- 2.6%
• January 1995 -- 2.8%
• January 1996 -- 2.6%
• January 1997 -- 2.9%

Since the mid-90s, there has been no period when the raise has been so high for four consecutive years. In fact, there were many years when the raise was under 2%, including several years when seniors saw a 0% annual increase in their Social Security benefits.

Why is the COLA breaking this record and what does it mean for seniors?

This once-in-a-generation streak of high COLAs is driven by the fact that the U.S. has seen four consecutive years of rapidly rising prices. That's because the COLA is directly tied to the rate of inflation.

While there have been other years when prices went up -- like in 2009 when there was a 5.8% price increase measured in the financial indexes used to calculate the COLA -- costs have not increased so much for so long since the early 1990s.

Unfortunately, while big raises can feel like good news to retirees, a multi-year period of record inflation actually isn't good for retirees who are likely living on a fixed income and probably have a good portion of their money in safe investments that may not keep pace with inflation.

The good news is, the COLA decreased in both 2024 and 2025 compared with the two prior years, so inflation rates have slowly been declining. In fact, price increases have slowed enough that the Federal Reserve lowered the benchmark interest rate in September 2024 for the first time in years, and the Fed is projecting more cuts in 2024 and 2025.

Still, prices aren't likely to go back down to the pre-pandemic era even as they are increasing more slowly now. And while seniors have gotten big Social Security raises, they may still have lost ground in terms of the buying power provided by their investment and savings accounts.

Retirees should make sure they have the right asset allocation so they can maximize returns in this tough environment without taking on too much unnecessary risk. It's also important to make sure you're sticking to a safe withdrawal rate even if that means adjusting your consumption in times of rising prices, as you don't want to run out of money too soon.

Seniors should also hope that this 2025 raise is their last big one for a while, and that in 2026 and beyond, their COLAs will go back to being around 2% or less since that will mean inflation is on a more sustainable level.

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