Because millions of older Americans rely on Social Security to make ends meet, the program’s annual cost-of-living adjustments (COLAs) are an important thing. COLAs are what enable benefits to keep pace with inflation — at least in theory — so that seniors who get the bulk or all of their income from Social Security don’t fall behind.
The Social Security Administration (SSA) will be in a position to make an official 2025 COLA announcement on Oct. 10. At that point, inflation data from September should be available, which is currently the big missing piece of the puzzle needed to calculate that number.
But while everyone will need to sit tight a bit longer to see what 2025’s Social Security COLA amounts to, there’s a decent amount of information out there already. Here’s some key information about next year’s raise.
1. It will likely be lower than 2024’s COLA
Initial estimates are calling for a 2.5% COLA in 2025. There’s a good chance the official number will be a bit higher or lower than that (though it’s possible that 2025’s raise ends up being exactly 2.5%, too). But either way, seniors should expect their 2025 COLA to be smaller than 2024’s 3.2% increase.
That’s not a totally bad thing, though. Because Social Security COLAs are pegged to inflation, a lower one generally means that living costs aren’t rising at such a rapid pace. And slowing inflation is good news for consumers on the whole.
2. It will be impacted by changes in the cost of Medicare Part B
Seniors who collect Social Security and are signed up for Medicare have their monthly Part B premiums deducted from their benefit payments. This makes life easier on seniors while ensuring that those premiums are paid. However, when the cost of Medicare Part B rises a lot from one year to the next, it can have a negative impact on retirees’ COLAs by reducing the amount of extra Social Security they get.
The average monthly Social Security benefit today is about $1,920. And if 2025’s Social Security COLA ends up being 2.5%, that results in an average increase of $48 a month. But if the cost of Medicare Part B rises by $12 a month, it’ll shave 25% of that increase off, leaving the typical senior with just $36 extra per month instead.
3. It’ll probably fall short for seniors no matter what
Seniors who have seen the recent 2.5% COLA estimate for next year may be holding out hope that their Social Security raise will somehow come in higher. But even if that happens, there’s a good chance it’ll disappoint.
The reason? Social Security COLAs have a long history of failing to help seniors keep up with inflation. The nonpartisan Senior Citizens League reported last year that Social Security recipients had lost 36% of their buying power since 2000 due to insufficient COLAs.
A big part of the problem is the way those COLAs are calculated. They’re based on changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But the CPI-W is not at all a senior-specific index. In fact, it’s a generally poor measure of the costs Social Security beneficiaries face since many are not wage earners and many don’t live in urban areas.
Changing to a more senior-specific index could result in larger COLAs in the future. But while a shift like that has been discussed by lawmakers, it’s nowhere close to being implemented.
While there’s still a bit of time left before an official 2025 Social Security COLA announcement hits, there’s lots to know about next year’s raise right now. Retirees should use this information to start preparing financially for 2025 — and also, to avoid a surprise come Oct. 10.
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3 Things to Know About Social Security’s 2025 COLA as the Official Announcement Gets Closer was originally published by The Motley Fool
