Related: Retirees just got a (small) raise: Social Security announces a 3.2% COLA

SSA officials base the COLAs on inflation data from the Bureau of Labor Statistics. The 2025 COLA is the smallest since 2021 because inflation has been at the lowest level since 2020.

What it means: The Social Security COLA is an inflation measure, and it also affects how much the 68 million people getting Social Security benefits have to spend.

The COLA can have a noticeable, direct effect on employers that depend heavily on business from retirees.

Compensation analysts may think about the Social Security COLA, along with other inflation indicators, when analyzing employers' spending on wages, salaries and benefits.

Location location location: The new Social Security COLA might be more generous for retirees in some areas than in others.

The Social Security Administration follows a calculation method set forth in federal statutes and bases the COLA on the third-quarter average for one key Bureau of Labor Statistics inflation measure, the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

CPI-W rose just 2.2% during the 12-month period that ended Sept. 30.

But a breakdown by region shows that increases in another, similar inflation measure, Consumer Price Index for All Urban Consumers, or CPI-U, ranged from 1.2%, in the Tampa, Florida, area, up to 4.1%, in the Chicago area.

That means the new Social Security COLA could seem like a raise in Tampa and a pay cut in Chicago.

AARP's view: AARP Chief Executive Officer Jo Ann Jenkins pointed out that Social Security is the primary source of income for about 40% of Americans over 65.

"While this adjustment is important, there is more we must do to ensure older Americans can continue to count on Social Security," Jenkins said, referring to concerns about the program's solvency. "AARP continues to call on Congress to take bipartisan action to strengthen Social Security."

Federal employees: William Shackelford, president of the National Active and Retired Federal Employees Association, pointed out that federal employees depend on COLAs for annuities provided through two different retirement systems: the Civil Service Retirement System and the Federal Employee Retirement System.

The Civil Service COLA will be 2.5%, but the FERS COLA is on track to be just 2%.

"Inflation impacts these FERS retirees the same ways as all other retirees, yet they are forced to accept a diet COLA," Shackelford said.

He wants Congress to pass a bill that would provide COLAs equal to the full Social Security COLA for FERS retirees.