The Social Security Administration announced on Thursday that the cost-of-living adjustment (COLA) for 2025 will be 2.5%, a decrease from the 3.2% increase in 2024, marking the smallest adjustment since 2021.

COLA is calculated based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from July through September of the previous year compared to the same period in the current year. While the annual CPI-W rose by 2.2% in September, the overall inflation rate increased by 2.4%.

It will affect nearly 68 million social security beneficiaries starting in January, with the average monthly payment rising by $50 to $1,957, up from $1,907 in January 2024, according to USA Today.

Additionally, about 7.5 million supplemental security income (SSI) recipients, who include individuals with disabilities and older adults with limited income, will see their increased benefits starting December 31.

The annual COLA is intended to protect beneficiaries’ purchasing power against inflation, but many older Americans report that this adjustment is insufficient. An AARP survey conducted in August found that 83% of older adults believe a COLA of less than 3% would not adequately meet their needs.

As average retiree benefits rise by $50 per month, experts warn that this increase may not be sufficient to cover rising living expenses.

Mary Johnson, an independent analyst, said: “That’s only going to buy about 14 gallons of gasoline per month at today’s prices, or maybe enough groceries for one to last two or three days.”