The Social Security Administration (SSA) has officially announced a cost-of-living adjustment (COLA) that will provide extra money for retirees starting January 1, 2025. This adjustment will result in a 2.5% increase in Social Security benefits, which equates to about $48 more per month for a typical retiree and approximately $39 more per month for a typical disabled worker. Despite this increase, many Americans have expressed disappointment.
The 2025 adjustment is significantly lower than the 8.7% and 5.9% increases from 2023 and 2022, respectively, and falls below the 2.83% average of the previous decade. However, a more moderate COLA has the advantage of reflecting a decrease in inflation, which can positively impact retirees’ overall financial health. The COLA is designed to help Social Security benefits keep pace with rising costs.
It is based on changes in the Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Each year, the SSA averages the CPI-W figures from the third quarter; if the average is higher than the previous year’s average for the same period, a COLA is applied. High inflation rates in 2021 and 2022 resulted in record-breaking adjustments for 2022 and 2023.
Conversely, the lower COLA for 2025 reflects slowing inflation, with a 2.6% increase in the CPI as of October 2024, down from 3.2% in October 2023 and 7.7% in October 2022. A lower COLA suggests that prices are stabilizing, which can have a more positive impact on retirees’ budgets than slightly higher payments. Although the increase may seem modest, the reduction in daily living costs can be a substantial benefit.
Retirees should note that the COLA is not intended to significantly improve their overall financial situation but to offset rising consumer costs. To better enhance financial well-being in retirement, proactive measures such as finding additional income sources, downsizing a home, or part-time work can be beneficial. For those looking to stay informed about Social Security benefits, the SSA offers several resources.
Beneficiaries can sign up for the Social Security Matters blog, review annual COLA updates, join the Email Digest for significant news and policy changes, or create a personal My Social Security account to receive critical notifications through the Message Center. The average Social Security check to retirees will undergo a significant change as of January 1, 2025. Without an inflation-based boost, seniors would undoubtedly lose purchasing power from year to year, which is why Social Security check amounts are subject to an annual cost-of-living adjustment (COLA).
Social Security COLA outlook for 2025
However, this does not necessarily imply that Social Security’s COLAs are always generous. In 2025, the average monthly Social Security income is expected to increase from $1,927 to $1,976 with the 2.5% COLA, marking a $49 rise.
However, the cost of Medicare Part B will increase as well. The standard monthly premium for Part B is presently $174.70 but will rise to $185 in 2025. When that is taken into consideration, the average Social Security payout in 2025 will increase by more like $39.
Considering the rising living expenses, this increase is not significant. Besides retirees, other Social Security beneficiaries, including those in the survivor, disability, and SSI benefit programs, will also receive a 2.5% COLA increase. An increase in Medicare Part B costs will not affect all Social Security recipients, as some beneficiaries are not yet enrolled in Medicare.
Social Security eligibility starts at age 62, but Medicare eligibility doesn’t start until age 65. Therefore, some seniors may not see their benefits reduced by the Part B premium deduction. If your Social Security check only increases by about $39 per month in 2025, you might need to consider some significant lifestyle changes.
Moving to a less expensive region or downsizing your home could significantly improve your financial situation. Alternatively, you could rent out part of your larger property to generate additional income. Lastly, consider the possibility of working in some manner.
Gig jobs that offer flexible hours can provide a supplemental income without the constraints of a fixed schedule. Seniors should prepare for the limited increase in their Social Security checks by making appropriate changes to their lifestyle and financial planning. Despite the small COLA and rising Medicare costs, you are not destined to live a life of financial hardship.
By making strategic changes, you can position yourself to be more financially comfortable in the coming years.
