The Social Security Administration has announced there will be a 2.5 percent cost-of-living adjustment for 2025, marking a smaller increase than in recent years as inflation moderates.
The boost, unveiled on Thursday morning, covers nearly 68 million Social Security beneficiaries and an additional 7.5 million individuals receiving Supplemental Security Income.
As independent independent Social Security and Medicare policy analyst Mary Johnson told Barron's, the 2.5 percent increase aligns closely with the 20-year average of 2.6 percent.
Still, that might be cold comfort for retirees today, as it marks a relative decrease from the 2024 adjustment of 3.2 percent and a substantial slowdown from the 8.7 percent spike seen in 2023, which was driven by red-hot inflation.
The Social Security Administration also revealed that the maximum taxable earnings subject to Social Security will rise to $176,100 in 2025, up from $168,600 in 2024.
For the average retiree, the COLA translates to about $47 more per month, raising the typical monthly benefit to $1,872. However, a portion of that increase may be offset by rising Medicare costs. The Centers for Medicare and Medicaid Services is expected to increase the standard Medicare Part B premium to $185 per month, up from $174.70 in 2024. Since premiums are often deducted directly from Social Security payments, this increase will further pare back the net benefit for many retirees.
The COLA is determined annually by comparing inflation data from the third quarter of the current year to that of the previous year. The specific index used for this calculation, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), rose 2.2 percent over the past 12 months. In cases where no inflation is recorded, there is no COLA, a situation that last occurred in 2015.
The fact that the Social Security COLA is indexed against the pricing realities experienced by younger working adults has been another handicap for retirees, Johnson told InvestmentNews previously in August, as older Americans are likely to face higher medical costs along with the added burden of long-term care.
"Older consumers would consider this probably a COLA that, while they’re happy to have it … they are going to feel that it doesn’t very accurately affect their buying power,” she said at the time.
In a statement reacting to the 2025 COLA announcement, AARP Chief Executive Officer Jo Ann Jenkins acknowledged the role COLA has played historically in protecting seniors' buying power for essential items, but also drew attention to inflation's financial toll particularly on retirees over the past year.
"Even with this adjustment, we know many older Americans who rely on Social Security may find it hard to pay their bills. Social Security is the primary source of income for 40% of older Americans," she said.
While recognizing the benefit of the latest COLA, Jenkins maintained more has to be done to ensure Social Security continues to be a dependable source of financial relief for older Americans.
"AARP continues to call on Congress to take bipartisan action to strengthen Social Security and secure a long-term solution that Americans can rely on," she said.
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