2025 Social Security COLA increase: How much will benefits go up?
To keep pace with inflation, the Social Security Administration (SSA) adjusts benefit amounts annually, and the cost-of-living adjustment (COLA) for 2025 will be announced on October 10, 2024.
While the COLA for 2024 was 3.2%, analysts predict a smaller adjustment for 2025 due to cooling inflation. Currently, nearly 68 million Americans receive monthly Social Security benefits, totaling around $1.5 trillion.
What is the Social Security COLA?
Since its introduction in 1975, the SSA has adjusted benefits each year based on inflation to help seniors maintain their purchasing power. This annual increase is determined by changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
In recent years, the COLA has been notably higher due to the post-pandemic surge in inflation:
- 2021: 1.3%
- 2022: 5.9%
- 2023: 8.7%
- 2024: 3.2%
Though rare, benefits can remain static; the COLA has been 0% in 2009, 2010, and 2015. Since 2021, the Consumer Price Index has increased by 24.6%. If the 2025 adjustment is around 2.5%, it would bring cumulative benefits close to matching inflation, with a total increase of 23.4%.
Projected Social Security Increase for 2025
The SSA is set to announce the official COLA for 2025 on October 10, 2024. Both The Senior Citizens League and The Center for Retirement Research at Boston College have predicted a 2.5% increase. If accurate, this would mean a more modest raise compared to the 3.2% increase seen in 2024.
Recent data from the U.S. Bureau of Labor Statistics indicates that inflation is falling from post-pandemic highs, with the August 2024 Consumer Price Index reporting a mere 2.5% increase in average prices since August 2023, marking the smallest 12-month rise since February 2021.
If the COLA is indeed 2.5%, the average monthly benefit would increase by approximately $48, raising the average check for retirees to $1,966.
Understanding COLA Calculations
The COLA is linked to the CPI-W, which is calculated by the Bureau of Labor Statistics based on the average prices of essential household items like food, housing, and transportation. The COLA for 2025 will be determined using CPI-W data from July to September of the previous year, with the announcement expected in October 2024.
Changes to Social Security in 2025
To qualify for Social Security retirement benefits, individuals must earn 40 work credits over their lifetime, with a maximum of four credits available each year. In 2024, earning four credits requires an income exceeding $6,920, which will likely increase in 2025; the exact figure will be announced on October 10.
Additionally, the maximum amount of annual earnings subject to Social Security tax may also rise. The income cap for 2024 stands at $168,600, reflecting an increase of $8,400 from 2023.
Average Social Security Benefits
Specific Social Security benefits vary based on factors like income during working years and the age at which individuals begin claiming benefits. As of June 2024, the average monthly benefit for retired workers was $1,918, while the average for all recipients, including spouses, children, and disabled workers, was $1,781.
Many seniors depend heavily on Social Security; about half of recipients rely on these benefits for at least 50% of their household income, with a quarter depending on them for 90% or more. To supplement retirement income, options like employer-sponsored 401(k) plans or individual retirement accounts (IRAs) can help improve financial security.
When Will the Increase Take Effect?
The 2025 COLA increase will begin appearing in benefit checks starting January 2025, with payment dates determined by recipients’ birth dates:
- Born between the 1st and 10th: Check arrives on January 8, 2025.
- Born between the 11th and 20th: Check arrives on January 15, 2025.
- Born between the 21st and end of the month: Check arrives on January 22, 2025.
Some recipients may see increases even earlier. For example, those receiving benefits since before May 1997 will receive their first check of the year on January 3, 2025. Recipients of Supplemental Security Income (SSI) will typically be paid on the first of the month, but since New Year’s Day is a federal holiday, those checks will go out on December 31, 2024.
For a full calendar of Social Security payment dates, details can be found online.
When Can You Start Collecting Social Security?
Eligible workers can begin receiving Social Security benefits at age 62. However, benefits will be reduced if claimed before reaching full retirement age.
