The time has come, people.
2025 COLA announcements are here!
If you’re a regular reader of our blog, you know that the Serving Those Who Serve team is committed to keeping our community of Feds up to date on the crucial annual cost-of-living (COLA) updates that impact you and your financial life.
And have we got an update for you, folks! Upcoming COLAs for FERS, CSRS, and Social Security have recently been announced… so let’s get into it.
Social Security:
On Thursday, October 10th, the Social Security Administration announced that more than 72.5 million Americans will see a 2.5% cost-of-living adjustment (COLA) on their Social Security benefits payments, beginning in 2025. This comes in just shy of the 2.63% increase predicted by the Senior Citizens League earlier this year, which STWS reported in August.
Now, this adjustment may initially seem to pale in comparison to 2024’s 3.2% COLA and certainly 2023 and 2022’s COLA of 8.7% and 5.9%, respectively. To understand why, we’ll need to dig into how the COLA for Social Security is determined. Each month, the U.S. Bureau of Labor Statistics reports the Consumer Price Index (CPI). The CPI-W measures price changes paid by U.S. consumers for a basket of goods and services. The Social Security Administration (SSA) uses the CPI-W numbers to make its annual COLA calculation. The SSA compares the average CPI-W for the third quarter (July, August, and September) of the current year to the average CPI-W for the third quarter of the previous year. The SSA determines the COLA using the percentage increase in the average CPI between these two periods.
If there's an increase of more than 0.1%, the SSA approves the COLA increase. When there's no increase in the CPI, or if it decreases, there's no COLA for that year and benefits remain unchanged. If the SSA approves a COLA, recipients will receive an increase starting in January of the following year.
All in all, we aren’t surprised by the lower 2.5% COLA for Social Security in 2025, given that The Federal Reserve just slashed interest rates by half a percent last month, and inflation has come down significantly from its peak of 9.1% in June 2022 to just 2.4% last month.
CSRS:
Feds who’ve retired under the Civil Service Retirement System (CSRS) annuitants will receive the same 2.5% Social Security COLA reflected in their pension, since the COLA calculation is identical between CSRS and Social Security.
Check out our webinars for federal employees!
FERS:
Federal Employees Retirement System (FERS) annuitants can expect a slightly lower 2% COLA increase in 2024. The discrepancy between the CSRS and FERS COLAs is due to a difference in how COLAs are calculated under the different systems—the rules for FERS COLAs are summarized below:
| If the CPI increase is less than 2%... | FERS COLA equals the CPI increase. |
| If the CPI increase is between 2.1% and 3%... | FERS COLA is 2%. |
| If the CPI increase is more than 3%... | FERS COLA is the CPI increase minus 1%. |
Given that the CPI has increased by 2.41% as of October 2024 compared to one year ago, a FERS COLA of 2% is in order.
Unhappy with the COLA Updates for 2025?
You’re not alone. One of the main criticisms of COLA is that the CPI measure used for the calculation may not accurately reflect the high inflation experienced by retirees. Some critics argue that the CPI drastically understates certain price increases related to housing, healthcare, and utilities.
The reality is that while federal retirees do receive COLA increases on their Social Security and government pensions, it’s very possible that these increases could be insufficient to keep pace with the day-to-day price increases they experience firsthand. For Feds, a key step to bridge this inflation gap is to implement a carefully planned investment strategy in your Thrift Savings Plan (TSP) and other retirement investments. The stock market and equities offer the best long-term hedge against inflation. Feds need to have equity exposure to the degree that is reasonable given their own personal risk tolerance and financial goals.
Wrapping It All Up
The recent announcements of COLA adjustments for Social Security and federal pensions are crucial updates, not just for retirees, but also for those planning for retirement. At Serving Those Who Serve, we encourage our community to stay informed and proactive in their financial planning. Whether you are already retired or planning for your future, understanding these changes can help you make informed decisions and work towards building a stable financial future.
If you have any questions or need assistance with your financial planning, don't hesitate to reach out to our team of experts. We're here to help. Feel free to reach out to our team at [email protected] if you think we can.
You Might Also Enjoy This Podcast
Katelyn Murray, CFP®, ChFEBC℠, FBS®, CFT-1™: Relationship Team Lead & Financial Planning Expert
Katelyn is a financial advisor with over a decade of experience working with Feds to build a healthy, balanced relationship with money and to design and enjoy the retirement of their dreams. In addition to her CERTIFIED FINANCIAL PLANNER™ and Chartered Federal Employee Benefits Consultant℠ designations, Katelyn also holds a Master in Business Administration as well as a graduate certificate in financial psychology and behavioral finance. Her unique approach merges financial psychology with traditional wealth management expertise to create an integrated financial planning approach that helps clients make the most of the one resource they can’t get more of: time.
Here at Serving Those Who Serve, Katelyn serves as our Director of Relationship Management, mentoring our advisors and guiding our client experience. She also co-hosts The Fed15 podcast each week with STWS founder Dan Sipe.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
**Written by Katelyn Murray, CFP®, ChFEBC®, FBS®, CFT-1™, ECA. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Katelyn Murray and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
