Personal Finance

Get Ready for the Smallest Social Security COLA Since 2021

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For the millions of older Americans who get most of their monthly income from Social Security, annual COLAs, or cost-of-living adjustments, are a big deal. COLAs are designed to boost benefits in line with inflation so that seniors don’t lose out on buying power from one year to the next.

Key Points from 24/7 Wall St.

  • A slowdown in inflation will leave seniors with their smallest Social Security raise in years in 2025.
  • Next year’s 2.5% COLA may not go very far, especially if inflation continues to creep upward.
  • An increase in Medicare Part B’s standard monthly premium also isn’t helping matters.
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But Social Security’s 2025 COLA isn’t going to be much to write home about, especially compared to recent raises seniors have received. And if you’re on Social Security, it’s important to know what to expect in the new year.

The smallest raise in years

Social Security recipients have been a bit spoiled by generous COLAs in recent years. In 2022, benefits rose 5.9% following an uptick in inflation. And in 2023, Social Security beneficiaries got their largest COLA in decades — an 8.7% boost that came on the heels of a year of rampant inflation.

Even 2024’s 3.2% Social Security COLA was higher than average. But in 2025, Social Security benefits will only rise by 2.5%. And while 2.5% is fairly in line with the average Social Security increase over the past decade, compared to more recent COLAs, it seems to fall short.

There are also two issues compounding the problem of a meager Social Security COLA in 2025. First, since that 2.5% COLA was announced, inflation has begun to tick upward.

In November, the Consumer Price Index put annual inflation at 2.7%. If that trend continues, Social Security recipients stand to losing buying power in the new year due to a COLA that won’t keep up.

The other issue is that the cost of Medicare Part B is rising in 2025. Enrollees in Medicare who also get Social Security have their Part B premiums automatically deducted from their monthly benefits. A roughly $10 increase in Part B will limit the amount of extra money seniors get to walk away with.

Know what to expect

Although Social Security’s 2025 COLA surely won’t be the smallest to ever arrive (there been a number of 0% COLA years in the past), it also may not do a whole lot of good for your finances. So if you’re struggling to make ends in retirement already, it may be time to make changes to the way you live.

One thing it could pay to consider is downsizing into a smaller home. Doing so could reduce your property tax bill, insurance, and maintenance costs, even if your home is already paid off.

You could also see about giving up a car and relying on public transportation, rideshares, and your feet to get around instead. Whether that works will depend on what services you have available where you live. But seeing as how AAA puts the average monthly cost of owning a new vehicle at over $1,000, there could be some serious savings involved.

Finally, consider some type of part-time work if your monthly Social Security checks aren’t cutting it. A 2.5% COLA probably isn’t going to change your financial situation in a meaningful way. So if it’s already pretty dire, you may need an income boost beyond whatever increase you get to your monthly benefits.

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