Social Security recipients will see a 2.5 percent increase in their monthly checks next year, the federal government announced Thursday. It’s a smaller hike than in recent years, which was expected given the cooling of inflation.
Here’s what you need to know.
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.
“A low cost-of-living adjustment means that seniors’ purchasing power wasn’t eroded as much as in previous years,” said Romina Boccia, director of budget and entitlement policy at the libertarian Cato Institute. “People shouldn’t think of this as a bonus on top of their benefit, but rather as a necessary adjustment to make sure that their benefit is able to buy as many goods and services as previously.”
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.
How is the COLA increase calculated?
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.
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. Neither idea has gained much traction politically.
