Personal Finance

Social Security 2025: 3 Things You Need to Know About 2025's Social Security COLA

Maurie Backman

Published: December 10, 2024 10:02 am

Seniors on Social Security often rely heavily on their yearly cost-of-living adjustments (COLAs) to make ends meet. And in 2025, benefits will be increasing once again, this time to the tune of 2.5%.

But there’s more to the story than that. Here are a few key things to know about your upcoming Social Security COLA.

Key Points from 24/7 Wall St.

• Next year’s COLA is the smallest in years.
• Your 2025 Social Security COLA is unlikely to keep pace with inflation.
• If you’re on Medicare, your COLA will get reduced due to an increase in Part B costs.
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1. It’s the smallest raise since 2021

A 2.5% Social Security COLA isn’t such a small one, historically speaking. Yet you may hear a lot of people bemoaning the fact that it’s so little. What gives?

The problem boils down to the fact that seniors have gotten used to more generous raises, and that next year’s COLA is the smallest to arrive since 2021. That year, benefits rose just 1.3% in the midst of the pandemic. But then a period of rampant inflation followed that was spurred by stimulus policies designed to lift the U.S. economy out of its pandemic-induced slump.

In 2022, seniors on Social Security got a 5.9% COLA, followed by a record-breaking 8.7% raise in 2023. And even 2024’s COLA was fairly generous at 3.2%.

In context, it’s easy to see why a 2.5% COLA seems meager. But it’s actually fairly in line with the average Social Security COLA over the past 10 years, which may perhaps make you feel a bit better.

2. It’s probably not going to keep pace with inflation

The good news about 2025’s Social Security COLA is that it’s a sign of slowing inflation. The bad news is that a 2.5% raise is unlikely to actually keep up with inflation. And the reason is because Social Security COLAs rarely do.

Social Security COLAs, in fact, have a big flaw in their calculation. They’re based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which, as you can tell by the name of it, is not particularly reflective of costs that are specific to retired people.

The nonpartisan Senior Citizens League finds that Social Security benefits had, as of last year, lost 36% of their buying power since 2000. A big change in the way COLAs are calculated is needed to improve that number.

3. It may get whittled down by an increase in Medicare Part B

The cost of Medicare Part B isn’t set in stone and can rise from one year to the next. In 2025, Part B premiums are increasing by about $10 from 2024. This means that seniors who are enrolled in Medicare and Social Security at the same time won’t get their full 2025 COLA. Rather, they’ll have to subtract their Part B increase.

To be clear, you may have other Medicare increases in 2025 aside from Part B. It may be, for example, that your Part D premiums are rising, too. But since Medicare Part B premiums are paid directly from Social Security benefits, you’re likely to feel that impact on your COLA directly.