Social Security's 2025 COLA Estimate Just Dropped. Here's Why You Shouldn't Worry.

Social Security's 2025 COLA Estimate Just Dropped. Here's Why You Shouldn't Worry.

There's a big Social Security change that happens year after year. Social Security benefits are eligible for annual cost-of-living adjustments, or COLAs. The purpose of these raises is to help recipients maintain their buying power as inflation pushes the cost of living upward.

In 2024, Social Security beneficiaries saw their monthly checks rise by 3.2%. But based on recent estimates, next year's Social Security COLA isn't going to be as generous. In fact, the 2025 Social Security COLA was recently adjusted downward, but that's not necessarily something you should panic over.

There's still time to see those projections change

In May, the nonpartisan Senior Citizens League put out an estimate that had 2025's Social Security COLA coming in at 2.66%. Based on inflation data that came out in June, that projection was then adjusted downward to 2.57%.

Clearly, that's not the best news if you're someone who's hoping to see your Social Security check rise substantially. But there's also no reason to get upset just yet.

First of all, this most recent COLA projection is just that -- an estimate. Social Security COLAs are calculated based on third-quarter inflation data. And the third quarter of the year hasn't even begun. So it's too soon to get an accurate read on what next year's raise will be. And if inflation rises in the coming months, it could lead to a far more generous COLA than 2.57%.

Granted, most consumers don't want inflation to increase, as that will make everyday expenses cost more. But it's a possibility that can't be written off, either.

Furthermore, if 2025's Social Security COLA comes in lower than 2024's, it will be a sign of cooling inflation. So what seniors lose in the form of a smaller raise, they might gain in the form of more reasonably priced groceries and gas. These are just a couple of examples.

It's best not to be too reliant on Social Security COLAs

Seniors who get the bulk of their income from Social Security no doubt bank on generous COLAs to stay afloat. But that's a situation you really don't want to end up in if you can help it.

Social Security COLAs are often unpredictable, and they generally do a poor job of keeping pace with inflation. A much better bet, if you're not yet retired, is to save well so you can set yourself up with plenty of income outside of the monthly benefits you collect.

Socking away $300 a month in a retirement plan over 30 years will leave you with about $408,000 to your name, assuming you generate an average annual 8% return in your portfolio. That return is slightly below the stock market's average over the past 50 years. Make it $500 a month, and you're looking at more like $680,000.

Having a large nest egg to tap puts you in a position where you may not care if there's a year when your Social Security COLA is on the small side. And if you have $408,000 to your name or more, you most likely won't end up spinning your wheels reading up on COLA estimates well before the official numbers are able to be released.

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