Inflation has moderated over the past year, but many retired workers are still struggling to make ends meet. Less than 50% of Americans in retirement believe they have enough money, and nearly 90% are worried about rising prices devaluing their savings, according to the 2024 U.S. Retirement Survey from investment manager Schroders.

“Whether it’s a trip to the gas station, grocery store or pharmacy, prices in the U.S. have increased noticeably in recent years, and that is particularly challenging for retirees living on fixed income sources,” said Deb Boyden, Head of U.S. Defined Contribution at Schroders.

Of course, Social Security benefits get annual cost-of-living adjustments (COLAs) to preserve their buying power as prices rise across the economy. But The Senior Citizens League says that “COLAs have become less and less likely to keep up with inflation over time.” Indeed, while benefits received a 3.2% COLA in 2024, two-thirds of surveyed retirees say their expenses increased more than 3.2%.

That implies Social Security benefits lost buying power this year, which may explain why so many retired workers are facing financial hardship. Unfortunately, the problem is unlikely to improve next year, because Social Security benefits are on pace to get an even smaller COLA in 2025. Here are the important details.

Social Security COLAs depend on how inflation changes in the third quarter

Social Security cost-of-living adjustments (COLAs) are tied to inflation using the CPI-W, a subset of the Consumer Price Index. The CPI-W measures price changes based on the spending habits of hourly workers.

That may explain why Social Security benefits have lost buying power. Retirees spend money differently than workers, so the CPI-W may not reflect the true effect of inflation on Social Security recipients. For instance, the CPI-W may underestimate the effect of housing and medical expenses, simply because working-age individuals spend less on those items.

The COLA calculation itself is straightforward. The third-quarter CPI-W (the average reading between July and September) in the current year is divided by the third-quarter CPI-W from the prior year. The percent increase (if any) becomes the COLA in the following year. For instance, the third-quarter CPI-W increased 3.2% last year, so Social Security benefits got a 3.2% COLA this year.

Social Security benefits are on pace to get a 2.6% COLA in 2025

Social Security’s 2025 COLA cannot be calculated until third-quarter CPI-W data is readily available. The Labor Department will release the final puzzle piece, the September inflation report, on Oct. 10. That same day, the Social Security Administration will announce the official COLA for 2025.

In the meantime, The Senior Citizens League (TSCL), a nonprofit advocacy group, sifts through economic data to make predictions. TSCL usually updates its COLA forecast monthly as new data is made available. The most recent estimate was a downward revision to 2.6% in June, a tenth of a percentage point lower than 2.7% in May.

That is bad news for retirees already struggling to make ends meet. Not only are Social Security benefits on pace to get the smallest COLA in four years, but the forecast is also trending downward. If inflation continues to cool in the coming months, the actual 2025 COLA could be even lower than 2.6%.

The chart below illustrates how a 2.6% COLA would affect the average monthly Social Security payment for different beneficiaries.

AVERAGE BENEFIT (BEFORE 2.6% COLA) AVERAGE BENEFIT (AFTER 2.6% COLA) CHANGE
Retired Workers

$1,916

$1,966

$50
Spouses

$911

$935

$24
Survivors

$1,504

$1,543

$39
Disabled Workers

$1,538

$1,578

$40

DATA SOURCE: SOCIAL SECURITY ADMINISTRATION. TOTALS ARE ROUNDED TO THE NEAREST DOLLAR.

To be clear, cooling inflation is ultimately a good thing. It means prices across the economy are rising less quickly. But retired workers may find little consolation in that perspective, especially the ones struggling to make ends meet. Fortunately, if you fall into that category, you can do little things to improve your financial wellbeing.

First, separate your budget into necessary and discretionary items, then trim discretionary expenses where possible. Second, take advantage of elevated interest rates. Several high-yield savings accounts offer attractive terms right now. Third, consider working with a financial advisor. Retirees with a formal financial plan report nearly twice as much income as retirees who lack a financial plan, according to Schroders.