Social Security Benefits in 2025: Projecting the Latest COLA Increase Estimates for You
The annual Cost-of-Living Adjustment (COLA) will lead to an increase in Social Security benefits by 2.57% in 2025.
This will add $50 per month for most beneficiaries if they currently receive $1,480 as their average benefit.
However, the increase could be offset by higher Medical insurance premiums and taxes.
Any raise in Medicare Part B premiums which is going to be announced later this year, will reflect in the cost-of-living adjustment (COLA) for 2025 calculations and would be a bit less than the 3.2% increase that benefits received in 2024.
2025 COLA In Comparison to past years
The 2.6% COLA happens to be the smallest since 2021 and this is good news because inflation has decreased in the past few years.
Also 2.6% increase would also be less than the 3.4% average since COLAs were automatically implemented beginning in 1975.
Below for comparison are the five highest COLAs since 1975.
| Year | 1975 | 1979 | 1980 | 1981 | 2023 |
|---|---|---|---|---|---|
| COLA | 8% | 9.9% | 14.3% | 11.2% | 8.7% |
Alternatively here are the smallest five COLAs since 1975
| Year | 2010, 2011, 2016 | 2017 | 1987, 1999, 2021 | 2003 | 2014 |
|---|---|---|---|---|---|
| COLA (%) | 0% | 0.3% | 1.3% | 1.4% | 1.5% |
COLA was a very crucial component to offset the inflation period due to the pandemic. There was an increase of .9% COLA in 2022 and an 8.7% increase in 2023, the largest recorded since 1981. However since COLA is adjusted only once a year seniors faced delays in receiving these increases which impacted their buying ability.
Boston University economist Laurence Kotlikoff said, “Social Security’s COLA lag means that you are being compensated for inflation that occurred as far back as 15 months. When inflation was running at 8% a few years back, the COLA lag reduced recipients’ real benefits by roughly 4%. That’s a huge hit.”
How The COLA Is Calculated
The Social Security calculates the COLA using one benchmark: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)
There are a number of variables which are taken into account and this includes everyday household items, transportation, food and grocery costs, and other relevant expenses. Below are some of the components of each head-
- Transportation: gas, public transportation rates, and vehicle maintenance.
- Household items: toilet tissue, cleaning supplies, and detergent.
- Food and groceries: vegetables, bread, milk.
The CPI-W takes into account the spending of families living in urban areas where more than 50% of the family’s income is earned from clerical (office) or hourly wage occupations. As per figures released by the U.S. Department of Labor, this accounts for 32% of the U.S. population.
For the 71 million Americans, including retirees, veterans, and their dependents, Social Security benefits are a vital lifeline and to keep up with inflation, the Cost-of-Living Adjustment (COLA) was introduced in 1973 and has been applied since 1975. Every year COLA values are adjusted and help to keep up with inflation and maintain the purchasing power of Social Security payments.
The 2.57% increase in the COLA is, according to some experts, inadequate. A study by the Seniors League’s 2024 Loss of Buying Power reveals that the increase is not adequate and seniors will require an extra $370 per month to maintain the same purchasing power they had in 2010. I
Social Security payments can differ and are based on several factors such as retirement age, total taxes paid, and years worked.
Here is a list of the current average payments:
- Survivor Benefits: Average of $1,509.50 per month
- Retired Workers: About $1,907 per month
- SSI Beneficiaries (Individuals): Average of $943 per month
- SSI Beneficiaries (Couples): Average of $1,415 per month
- Retired Couples (filing jointly): Around $3,303 per month
- Spouses of Retired Workers: Average of $910 per month
- Children of Retired Workers: Average of $892.39 per month
Inflation is cooling down and the impacts of the pandemic and the Russian war is fading.
The final figures will be announced by the Social Security Administration in October after comparing this year’s third-quarter data with last year’s.
The next inflation reports will be out on September 11 for August and October 10 for September.
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