Cost-of-Living Adjustments, or COLAs, are meant to keep up with inflation and ensure that Social Security and SSI recipients don’t lose purchasing power as prices rise. In 2025, the adjustment increased benefits by 2.5%, which added about $49 to the average retiree’s monthly check. At first glance, this might seem like a helpful bump, but rising expenses across essential goods and services can quickly cancel out that gain. Groceries, gas, and healthcare costs continue to climb, putting pressure on households already stretching every dollar. Understanding how these COLA increases are calculated—and how they affect your real-world budget—is more important than ever.
What Is COLA and How Is It Calculated?
The Cost-of-Living Adjustment is a government measure designed to protect the value of Social Security and SSI benefits over time. It’s based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks the average change in prices for a standard basket of goods and services. Each fall, the Social Security Administration compares the third quarter CPI-W with the same period from the previous year. If there’s an increase, beneficiaries receive a corresponding boost in their monthly payments starting in January.
This process sounds simple, but it doesn’t always reflect how people experience inflation in daily life. While the CPI-W includes a range of categories, it doesn’t fully capture costs that affect older Americans most, such as healthcare and housing. That means the adjustment can fall short even in years when inflation is significant. Understanding this gap helps explain why some people feel like they’re falling behind—even with a COLA increase.
The 2025 COLA Increase Explained
The 2025 COLA brought a 2.5% increase in Social Security and SSI benefits, raising the average monthly payout for retirees from $1,927 to $1,976. That means recipients are seeing roughly $49 more each month, which might sound like a positive change. However, this increase is modest compared to the 8.7% jump seen in 2023, when inflation surged far higher. The smaller 2025 adjustment reflects recent cooling in inflation, but that doesn’t mean everyday costs have come down.
For those on fixed incomes, even a small increase matters—but it may not stretch as far as people hope. The added $49 could be used up quickly by rising utility bills or just a few extra trips to the grocery store. Many beneficiaries appreciate any raise, but there’s growing concern that COLA doesn’t do enough to match real-world spending. That concern becomes even more pressing when you look at how much common expenses have grown.
Rising Living Costs Outpacing COLA
Over the past few years, prices for essential goods have skyrocketed, making COLA increases feel less impactful. A dozen eggs that once cost $1.38 now run nearly $3.82—an increase of 176%. Ground beef has risen 47%, and utility gas is up 37%, all within a short span. These changes affect nearly every household, but they hit the hardest for those relying on fixed incomes.
COLA simply doesn’t keep pace with the steep increases in these basic needs. While a 2.5% raise helps on paper, the reality at the checkout line tells a different story. When food, gas, and energy costs spike, small percentage increases in benefits are easily swallowed. This leaves many recipients feeling like they’re always trying to catch up, even when their monthly checks are technically higher.
