On October 10, the Social Security Administration (SSA) announced the Cost-of-Living Adjustment (COLA) for monthly Social Security benefits, Supplemental Security Income payments, and Civil Service Retirement System (CSRS) retirees will be 2.5 percent for 2025. This is down from 3.2 percent in 2024, and the COLA will take effect in January. It also means Federal Employee Retirement System (FERS) annuitants will therefore receive a 2.0 percent COLA.

SSA says Social Security retirement benefits, on average, will increase by approximately $50 per month beginning in January.

The process for calculating the annual COLA is provided in the Social Security Act. The Act ties the annual COLA to the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as determined by the Department of Labor’s Bureau of Labor Statistics.

The COLA was 5.9 percent in 2022 and 8.7 percent in 2023. The lower increases for this year and 2025 reflect the Federal Reserve’s work to reduce inflation. The 2.5 percent COLA for 2025 will fall just shy of the average 2.6 percent increase over the last 20 years.

FERS retirees’ COLA is modified based on the size of the CSRS COLA. If the CSRS COLA is over 3 percent, as in 2024, FERS receive 1 percent less. If the COLA is between 2 and 3 percent (like 2025), the FERS COLA is 2 percent. If the CSRS COLA is less than 2 percent, FERS annuitants receive the full amount. FMA continues to endorse legislation the Equal COLA Act (H.R. 866 / S. 3194) that would provide FERS retirees with the same COLA. While this legislation does not appear likely to pass in the 118th Congress, we will urge legislators to revisit it in the next session. Further, FMA will continue to encourage the bill’s sponsors to modify the legislation to allow FERS retirees who retire before age 62 to receive a COLA.