The final piece of the puzzle fell into place Thursday morning for calculating the 2025 cost-of-living adjustment (COLA) for Social Security and federal retirement benefits.

Starting in January, many federal retirees will see a 2025 COLA of 2.5% added to their Social Security benefits and federal retirement annuities — but not everyone will receive the full adjustment.

Retirees in the Federal Employees Retirement System (FERS) usually receive a smaller cost-of-living adjustment each year for their annuities, though the exact difference depends on how big the COLA is in a given year:

• COLA is over 3%: FERS annuitants receive 1% less than the full COLA
• COLA is between 2% and 3%: FERS annuitants receive a 2% COLA
• COLA is less than 2%: FERS annuitants receive the full COLA

For 2025, based on those specifications, FERS retirees will receive a “diet” 2025 COLA of 2% for their retirement benefits beginning in January.

The annual COLA is meant to keep federal retirees’ and Social Security recipients’ benefits on pace with rising inflation. The Social Security Administration’s announcement Thursday of the 2025 COLA comes after the Bureau of Labor Statistics released September’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) — the final number needed to calculate the 2025 COLA. In numbers, Social Security retirement benefits will increase by about $50 per month next year, SSA said.

This year, SSA also updated its COLA notification form that it will mail out to beneficiaries in December. The changes aim to make it easier for annuitants to find the information most relevant to them.

“The simplified COLA notice is now only one page, uses plain and personalized language, and provides exact dates and dollar amounts of a person’s new benefit amount and any deductions,” SSA wrote in a press release.

COLA increases have averaged to about 2.6% over the last decade. But in just the past couple of years, retirees have seen a wide range of percentages for the annual COLA. The 2023 COLA spiked at 8.7%, which was the largest annual adjustment in more than 40 years. But the 2024 COLA was much smaller — annuitants received a 3.2% adjustment for their retirement benefits earlier this year. Due to the existing caps on those adjustments, FERS retirees received a 7.7% COLA in 2023 and a 2.2% COLA in 2024.

Initially, Congress’ rationale for giving FERS annuitants a “diet” COLA was to try to balance the scales, as the government transitioned from the Civil Service Retirement System (CSRS) to the newer FERS program in the 1980s. The idea was to use a reduced FERS annuity to try to better align with the overall value of the larger CSRS annuity. The FERS annuity, along with Social Security and the Thrift Savings Plan (TSP), create the three components of retirement for FERS retirees.

The difference a “diet” COLA makes in just one year may appear relatively minimal, but federal organizations have said many back-to-back years of smaller COLAs create a much larger separation over time, compared with what a FERS retiree would have received with the full COLA amount.

The National Active and Retired Federal Employees Association (NARFE) has projected that if the FERS COLA continues on its current trajectory, it will take less than five years for FERS retirees to see their annuities fall $900 behind what they would have received with a full COLA. After even more time, the difference could stretch to thousands of dollars.

NARFE National President William Shackelford additionally raised concerns about how the 2025 COLA stacks up against 2025 health premium increases for the Federal Employees Health Benefits (FEHB) program.

“This COLA also does not account for the sharp increase in the enrollee share of health insurance premiums affecting the federal community, which will rise by an average of 13.5% next year for federal annuitants,” Shackelford said in a statement. “While such increases may impact the following year’s COLA, they are not yet reflected in the past year’s data.”

In recent years, some lawmakers have called the COLA differences “unfair” and have pushed to give FERS annuitants a full COLA rather than the reduced amount. The bicameral Equal COLA Act, which Rep. Gerry Connolly (D-Va.) and Sen. Alex Padilla (D-Calif.) reintroduced this Congress, aims to remove the current two-tiered COLA system for federal retirees.

“The economic conditions that necessitate cost-of living-adjustments affect retirees in the same way, whether they are on CSRS or FERS,” Connolly said in a statement. “It is high time we recognized that reality.”

Another option that some lawmakers have considered is to change the overall calculation of the COLA. One recent bill, the Fair COLA for Seniors Act, would use the Consumer Price Index for the Elderly (CPI-E), rather than the CPI-W, to calculate the COLA each year.

The CPI-E emphasizes health care spending in its calculation and focuses on individuals ages 62 and older — the minimum age requirement for those who receive the COLA. The bill’s proponents have said the CPI-W doesn’t accurately track the spending habits of seniors, who typically spend more on health care costs.