The Social Security 2025 Cost of Living Adjustment (COLA) is around the corner, and many beneficiaries are feeling underwhelmed. After inflation quickly outpaced the 3.2% COLA in 2024, people relying on Social Security hoped for a larger increase to offset rising costs.
Unfortunately, the reality is different. The 2025 COLA will increase benefits by only 2.5%. While this reflects cooling inflation, the modest adjustment may not fully address the added financial strain many seniors and other beneficiaries have experienced.
What Does the 2.5% COLA Mean for Retirees?
The new COLA takes effect on January 1, 2025. It’s calculated by comparing the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the current year to that of the previous year. The resulting percentage is rounded to the nearest 0.1%.
For the average Social Security retirement check of $1,924.35 in 2024, a 2.5% increase adds about $48.11 per month. While this boost provides some relief, it may not be enough to cover growing expenses, especially for those with smaller benefits.
A Push for CPI-E
The disconnect between COLA increases and seniors’ actual costs has led to calls for using the CPI-E (Consumer Price Index for the Elderly) instead of the CPI-W. The CPI-E better reflects the spending patterns of people aged 62 and older, giving more weight to medical care, which rose 3.8% year over year. Advocates argue this switch could lead to more meaningful adjustments for beneficiaries.
Why You Might Not See the Full COLA
Even though the Social Security Administration (SSA) applies the full COLA to benefits, an often-overlooked factor reduces the amount retirees actually take home: Medicare Part B premiums.
In 2025, the Centers for Medicare and Medicaid Services (CMS) announced that standard Medicare Part B premiums will rise by $10.30, bringing the monthly premium to $185. Since these premiums are automatically deducted from Social Security checks, the net increase in benefits for most beneficiaries will be closer to $37.81 per month, not the $48.11 many were expecting.
For high-income beneficiaries, the impact is even greater. Their higher Part B premiums mean larger deductions, further reducing their take-home benefits.
While the 2.5% COLA offers some relief, it’s unlikely to make a significant dent in the financial challenges faced by many Social Security recipients. Rising medical costs and higher Medicare premiums continue to chip away at the modest increases, leaving beneficiaries feeling the pinch.
FAQs
What is the Social Security COLA for 2025?
The 2025 COLA is 2.5%, effective January 1, 2025.
How is the COLA calculated?
It’s based on the average CPI-W for the third quarter of the current year compared to the same period the previous year.
Why is my Social Security increase smaller than expected?
Medicare Part B premiums are deducted from your Social Security check, reducing the net increase you receive.
What is the average Social Security check after the 2025 COLA?
For 2024’s average check of $1,924.35, the COLA adds $48.11, but Medicare deductions reduce the net increase to approximately $37.81.
What is the CPI-E, and why is it important?
The CPI-E is a consumer price index focused on spending patterns of those aged 62 and older. Advocates say it better reflects seniors’ needs, especially for medical expenses.