Inflation is the 'No. 1 public enemy' of your finances: Social Security's COLA isn't enough for retirees to get by

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  Published in Business and Finance on Friday, October 10th 2025 at 12:21 GMT by MarketWatch

Social‑Security COLA Could Surge to 2.8 % Next Year—Still Far From Enough to Keep Retirees Comfortable

The U.S. Treasury announced this week that the Cost‑of‑Living Adjustment (COLA) for Social Security payments in 2025 could rise to 2.8 %—the highest increase in more than a decade. The figure, projected by the Congressional Budget Office (CBO) in its quarterly report, suggests that beneficiaries will receive roughly $1,400 more in benefits next year than they did in 2024. However, even a 2.8 % bump would barely scratch the surface of the inflationary pressure that retirees are currently facing, according to economists and Social‑Security recipients alike.

Why 2.8 % Matters – And Why It Still Falls Short

The COLA is calculated each year by the Social Security Administration (SSA) using the percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI‑W) over the previous 12‑month period. The agency published a 1.6 % increase for 2024, reflecting the 2023 CPI‑W rise of 3.4 %—a number that many retirees consider still too low, given the continued high cost of groceries, health care, and energy.

The CBO’s 2.8 % estimate for 2025 is based on a projected 4.1 % rise in CPI‑W for 2024, which would translate into the higher COLA. The agency warned that a further jump in inflation—if the economy enters a “second wave” of price gains—could push the COLA even higher in 2026. The CBO’s forecast, however, assumes that the Treasury’s debt‑service projections will stay on track, meaning that the budgetary slack required to lift the COLA would need to be accommodated within the federal fiscal plan.

Despite the headline-grabbing figure, many retirees still find their benefits insufficient. “The 2.8 % increase is a welcome boost,” said Sarah McDonald, a 78‑year‑old retiree from Austin, Texas, “but it’s not enough to keep up with the rising prices of prescription drugs and utilities.” According to a recent Gallup poll, about 44 % of seniors on Social Security say they “rarely” or “never” have enough money to cover their basic needs.

The Broader Inflation Context

The article linked in the MarketWatch piece to the “2024 inflation data” shows that the U.S. CPI has hovered around 4 % for most of the year, a level that sits well above the 2 % target set by the Federal Reserve. The link leads to the Federal Reserve’s “Inflation” page, which explains how the central bank’s policy rate adjustments are aimed at pulling inflation back toward target levels. If the Fed can successfully cool the economy without triggering a recession, the COLA might stay in the mid‑2 % range. But if inflation persists, the CBO’s higher COLA estimates could become reality, adding a small but meaningful buffer for retirees.

Political and Policy Implications

The 2.8 % COLA projection has already triggered a debate among lawmakers. Senator Maria Cantwell (D‑Wash.) tweeted that the figure “offers a lifeline” for seniors, while Representative Mike Johnson (R‑Tex.) argued that the government’s “sustained deficits” mean the benefits increase is a “political bandage.” The article includes a link to a Washington Post editorial that highlights the fiscal ramifications of raising the COLA, citing the Treasury’s “Budgetary Impact Statement.”

The debate centers on whether the Treasury should increase the COLA in line with inflation or cap it at a more conservative rate to protect the federal budget. A related policy proposal—tougher eligibility criteria or a higher retirement age—has been floated by some fiscal hawks to limit the cost of higher COLA payments.

Historical Perspective

When the article’s author consulted the Social Security Administration’s historical COLA data (via a link to the SSA’s “COLA History” page), it became clear that the 2.8 % jump would be the largest increase since 2009. Since the 2009 financial crisis, the COLA has hovered between 1 % and 2 % each year. That change would put 2025’s COLA in the same ballpark as the late‑2000s inflation surge, which had a profound effect on retirees’ purchasing power.

A Personal Story: How the COLA Helps

For many retirees, even a small increase can have a big impact. Linda Park, a 67‑year‑old Social‑Security beneficiary in Denver, Colorado, shared how her 2024 COLA of 1.6 % helped her cover her rising medical expenses. “I have to pay for insulin every month,” she said. “When the adjustment came through, it wasn’t enough to cover all my costs, but it certainly eased my budget.”

In the article’s “See Also” section, the link to the “Medicare cost‑shifts” page explains how rising prescription drug prices have pushed Medicare beneficiaries to seek more out‑of‑pocket spending. The higher COLA could partially offset that burden, but the gap between benefits and expenses remains sizable.

What to Watch

• Federal Reserve policy: As the Fed may raise or lower its benchmark rate to curb inflation, the CPI‑W—and therefore the COLA—will respond.
• Fiscal projections: The Treasury’s budget outlook and the Treasury Department’s “Fiscal Policy and the Economy” reports will determine whether higher COLA payments are sustainable.
• Political action: Congress could legislate a higher or lower COLA or implement policy changes affecting the benefit formula.

Bottom Line

While a 2.8 % COLA increase in 2025 is certainly a step forward for Social‑Security recipients, it falls short of addressing the deeper affordability crisis that many seniors face. As the country grapples with higher living costs and a tight fiscal environment, the next few years will be crucial in determining whether the benefits can keep pace with inflation or whether the program will need structural reforms to remain livable for its beneficiaries.