Social Security’s 3.2% cost-of-living adjustment (COLA) for 2024 was underwhelming for many seniors, and 2025’s COLA is poised to be even more disappointing. Nearly two-thirds of retirees dependent on Social Security consider COLAs insufficient and say they have helped very little with key expenses, according to The Motley Fool’s recent survey.

More than 4 in 5 said the COLAs don’t reflect retirees’ financial situations. It comes back to the unusual way the Social Security Administration calculates COLAs. But things might not stay like this forever.

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Social Security COLAs aren’t based on senior spending 

The government calculates Social Security COLAs by looking at the annual change in average third-quarter inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index measures the cost of a basket of popular goods and services, including groceries and personal-care products, over time.

The problem with this method is that the CPI-W looks at the spending habits of workers rather than retirees. To be included in this index, a household must live in an urban metropolitan area, have at least one-half of its income come from clerical or wage occupations, and have at least one household member employed for at least 37 weeks in the previous 12 months. That, by default, rules out households where all members are retired.

It might not seem like a big deal, but the spending habits of these workers are much different than those of senior citizens. We know this because the government tracks senior spending with the Consumer Price Index for the Elderly (CPI-E).

The nonpartisan Senior Citizens League (TSCL) conducted an analysis that revealed that COLAs would have been higher in seven of the last 10 years if the government used the CPI-E to calculate them instead of the CPI-W. This would have resulted in $2,689.20 in additional benefits for the average Social Security beneficiary during this time.

Is a change possible?

Many have called upon the government to change the COLA calculation to use CPI-E data rather than CPI-W data, but that’s easier said than done. Social Security is currently facing a funding crisis, with the program’s trust funds expected to be depleted in 2035. After that, it will only be able to pay out 83% of scheduled benefits unless the government increases its funding.

Until it resolves this solvency issue, Congress isn’t likely to approve a switch to the CPI-E because that could accelerate the trust funds’ depletion. It could change the COLA calculation in conjunction with other alterations to ensure Social Security’s long-term stability. But we have no idea when this might happen or what the government’s fix might look like. Seniors might still see some benefit cuts.

In the interim, all retirees can do is plan their finances carefully to make the most of the Social Security benefits they have. We’re about a month away from the 2025 Social Security COLA announcement. When this comes out, beneficiaries will be able to estimate what their checks will look like next year. The government will also issue personalized COLA notices in December.

If you get Social Security benefits, once you know what your new monthly check will look like, you will know how much more of your expenses you’ll need to cover on your own, what spending cuts you will need to make, or how much more of your retirement savings you will need to tap.