The annual cost of living adjustment (COLA) by the Social Security Administration (SSA) to Social Security payments for 2025 is expected to be 2.5%, the smallest COLA increase in the past three years. In 2024, it was 3.2%. The year before that, it had more than doubled, up 8.7%.   

Seniors eagerly await the mid-October annual release of the inflation-linked COLA hike in Social Security benefits because two-thirds of American seniors rely on these monthly payments for over half their income, while 28% rely on them entirely. 

COLA is a big deal for seniors. 

If the projected 2.5% increase is accurate, it will disappoint seniors struggling with higher costs. However, the average annual increase over the past 20 years is 2.6%, so the 2025 increase would align with the historical average. Further, as recently as 2016, there was no increase. 

The annual COLA increase is calculated by taking the average monthly Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the three months between July and September. This year’s September CPI-W number comes out on Oct. 10. 

The COLA figure in 2025 will be released after the SSA has had time to digest the CPI data. 

The annual Medicare premium increases are not included in the COLA increase each year. Significant changes will affect how much Social Security seniors receive in the coming year in 2025.

Here’s what seniors can expect for a true COLA increase in 2025.   

Key Points About This Article:

• In mid-October, retirees find out how much of their monthly Social Security check increase will be eaten up by rising Medicare premiums. 
• Seniors could see nearly a $10 monthly increase. 
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The Big Change to Medicare

The Centers for Medicare & Medicaid Services (CMS) announced major changes to Medicare in 2025. Many of the changes are a result of the Inflation Reduction Act of 2022. 

The biggest positive change in 2025 is the cap on out-of-pocket drug costs at $2,000 for Medicare Part D policies and drug coverage under Medicare Advantage plans. 

“It’s the first time in the history of the Medicare program that people have a cap on how much they could have to pay out of pocket,” Meena Seshamani, M.D., the director of the federal Center for Medicare, said in an interview with AARP.

While the Part D cap covers deductibles, copayments, and coinsurance on covered drugs, it doesn’t apply to drugs not covered or your premiums. Further, it doesn’t apply to Medicare Part B costs, such as flu injections at your doctor’s office. In addition, the Part D cap can be adjusted annually to reflect higher costs. 

Eliminates the ‘Donut Hole’

A significant positive of the Part D cap is that it eliminates the “donut hole” coverage gap existing before the 2025 changes. 

Previously, you would pay the full price for drugs up to the maximum deductible of $545 when your initial coverage kicked in with copayments based on type of medication. In 2024, once you hit $5,030 spent on covered drugs and deductibles, you paid approximately 25% of out-of-pocket drug costs until hitting an annual limit of $8,000. You were then covered once more for any drugs prescribed to the end of the year.

With Part D, you pay a deductible of $590, with copayments until the $2,000 out-of-pocket cap. Further, enrollees can spread their out-of-pocket drug costs over 12 months rather than all at once, providing some relief on prescription costs.

However, because the cap doesn’t include premiums — except for a 6% cap on base Part D premiums — your total premiums for Medicare could be higher than that. 

This is why shopping around for the best plan for your family is essential.  

The Projected Cost of Living Adjustment for 2025 including Medicare Premiums

As discussed in the introduction, the projected COLA increase for 2025 is 2.5%. The average monthly Social Security check, according to the SSA, was $1,782.74 as of July 31. That’s a projected $45 monthly increase in 2025 to $1,827.31.

Assuming you are single and earned $103,000 or less in 2022, your 2024 monthly Medicare Part B premium was $174.70, 5.9% higher than in 2023. The annual deductible was $240, up 6.2% from a year earlier. Your Part D monthly premium was $55.50, 1.8% lower than in 2023. Together, that’s $230.20 monthly for Part B and Part D premiums. 

The That’s B and Part D premiums estimate will be released in mid-October when the COLA increase is out. 

Based on similar increases or decreases in 2025 from 2024, the combined monthly premium for a single person earning $103,000 or less, which includes many seniors, is projected to be $239.50, 4.0% higher than in 2024. This would reduce the estimated monthly income from Social Security by 13% to $1,587.81.

 

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