Social Security COLA Disappoints at 2.5% for 2025

Seniors are short-changed, once again.

Oct 10, 2024

Social Security recipients will have to prepare themselves for yet another disappointing COLA increase for 2025.

They will see a miserly 2.5 percent increase in their monthly checks next year, the federal government announced Thursday. Once again, this small increase is not enough to keep up with those rising expenses felt the most by Social Security recipients; costs of health care increases, rising auto and skyrocketing house insurance premiums, not to mention rising real estate taxes.

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With the havoc and destruction caused by Hurricane Helene and Hurricane Milton the past two weeks, property insurance companies are sure to increase home-owner insurance premiums even more than the roughly 15%-20% increases experienced nationwide in 2024.

It’s a smaller hike than in recent years, which was expected given the cooling of inflation. Expected or not, it will wallop those 40% of seniors that live almost entirely off of social security benefits.

Soaring prices in recent years brought unusually large cost-of-living increases in benefit checks, since Social Security payouts are automatically adjusted once a year based on a government measure of inflation. The annual adjustment, known as COLA, brought seniors a 5.9 percent boost in 2022, an 8.7 percent increase in 2023 (the largest in about 40 years) and a 3.2 percent increase in 2024.

How Much Will Social Security Benefits Increase in 2025?

The 2.5 percent increase will apply to all Social Security checks for retirees and people with disabilities beginning at the start of 2025.

For the average retiree who now receives $1,907 monthly, that represents a monthly raise of about $48. Beneficiaries who receive the maximum monthly benefit, which is $4,873 this year, will see about $122 more per month next year.

The nation’s 67 million Social Security beneficiaries will get personalized letters in December telling them how much their own benefits will increase.

Or, you can simply take out your calculator and multiply your current benefit by 1.025 to get your 2025 benefit amount, lickety split!

For workers, the amount of income subject to Social Security taxes rises with inflation too, though the cap is high enough that it doesn’t affect most wage earners. This year, workers pay Social Security taxes on their first $168,000 in income; next year, that will rise to $176,000.

COLA increase Calculation

Since 1975, federal law has made annual adjustments to Social Security benefits an automatic calculation rather than letting lawmakers decide. The increase is based on the average inflation during the third quarter — July, August and September — as measured by the consumer price index for Urban Wage Earners and Clerical Workers (CPI-W). It’s intended to reflect cost-of-living changes over a one-year period.

As the cost of living increases, benefits are supposed to automatically rise so seniors can still afford the same necessities. Sadly, the way the COLA is calculated, seniors are constantly short-changed and come up short. The items that impact recipients the most, like health care costs, home and auto insurance and real estate taxes are never included in these calculations. So, you could say that the calculations are concocted to shortchange seniors and save government a whole lot of cash each year in benefits not paid out.

Calculating the cost of living is not without controversy. Analysts on both the left and right have argued that the government should change the precise measurements it uses to determine the COLA, in ways that would either increase or decrease seniors’ benefits.

As the Social Security Trust Fund comes closer to the date when it is projected to run out of money, about a decade away, some Republicans have raised the idea of saving money by ending COLA increases for better-off seniors or leaving COLAs up to congressional discretion rather than making the increases automatic. Thankfully, neither idea has gained much traction politically.

Social Security Benefits: Will They Keep Up with Expenses?

In a word, no.

Some advocates on the left say that the specific index used to calculate COLAs — which is based on urban workers’ expenses — fails to account for the rising cost of health care, which tends to outpace other inflation. This most assuredly leave seniors behind, even with the increases in their Social Security checks.

Your Takeaway

Some critics have pointed out that seniors have higher expenses than the cost-of-living adjustment. Items like Health-care costs and drug prices have been rising faster than flat-screen TVs and the latest iPhones.

On top of this shortfall, if a recipient’s income reaches a high-enough level, they will pay an increased IRMMA adjustment for drug coverage, deducted automatically from their monthly benefit along with a project $10.85 monthly increase in part B medical premiums.

When seniors get next year’s modestly larger checks they’re going to be disappointed.

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