Social Security beneficiaries will receive a 2.5% increase in their payments beginning in January 2025, thanks to the latest cost-of-living adjustment announced Oct. 10 by the Social Security Administration. For retired Social Security benefits recipients, that means checks will increase by an estimated $48 in January, rising from $1,920 to $1,968, according to the Senior Citizens League.
Every October, the Social Security Administration reveals its annual cost-of-living adjustment, also known as COLA, based on inflation data from the U.S. Bureau of Labor Statistics. This year’s adjustment is the lowest since 2020, when the COLA was 1.3%.
The September 2024 consumer price index for urban wage earners and clerical workers, or CPI-W, report shows a 2.2% increase in average prices over the last 12 months, down from 2.4% in August, indicating that inflation continues to fall.
As Americans look ahead to benefit increases in 2025, it can be helpful to understand:
— How the Social Security COLA is determined
— How the Social Security COLA changes
— Ways for Social Security beneficiaries to earn more
— How to prepare financially for COLA
[Read: How to Correct Your Social Security Earnings Record.]
How the Social Security COLA Is Determined
There is a method that is used to establish the COLA every year. The Social Security Administration reviews the percentage changes in the consumer price index for urban wage earners during the third quarter from one year to the next. This information is applied to the calculations for the upcoming COLA.
If the CPI shows low rates, it is an indicator that living expenses for Americans, on average, have not climbed significantly during the last months. Higher rates reflect rising costs and steeper inflation. “Ultimately, the Social Security Administration determines its cost-of-living adjustment based on its expectations for the rate of inflation in the next year,” said Krieg Tidemann, assistant professor of economics at Niagara University, in an email.
The idea is to help retirees have enough to cover their needs every year.
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How the Social Security COLA Changes
Some experts predict the COLA for the following year before it is officially announced. The Senior Citizens League, for instance, correctly estimated in September that the COLA would be 2.5% for 2025, down from its July estimate of 2.57%.
In 2023, the Social Security Administration indicated the COLA would increase by 3.2% in 2024. Beginning in January 2024, checks reflecting those increases were sent to the more than 66 million retirees who receive Social Security benefits.
In 2023, the COLA increased by 8.7%, its largest increase since 1981. This followed a 5.9% increase in 2022, which was the highest in four decades at the time it was issued. A check of $1,000 in 2021 would have increased to $1,059 in 2022. Following the COLA of 2023, the amount would have gone up by an estimated $92 to $1,151. The additional 3.2% bump led to an increase of $37 on the 2023 payout, making a benefit amount of $1,188 in 2024. For 2025, checks going to retired Social Security recipients may increase by an estimated $48, rising from $1,920 to $1,968.
| Year It Takes Effect | COLA |
| 2025 | 2.5% |
| 2024 | 3.2% |
| 2023 | 8.7% |
| 2022 | 5.9% |
Monitoring the Consumer Price Index
According to the U.S. Bureau of Labor Statistics, the CPI-W for September 2024 increased 0.1% on a seasonally adjusted basis. All items increased by an average of 2.2% during the previous 12 months. Overall, inflation in 2024 has been lower than in 2022, which saw 40-year highs in June of that year.
The CPI can be continually monitored to make future estimates. “Remember that COLA is directly tied to inflation,” said Jeremy Keil, a financial advisor at Keil Financial Partners in New Berlin, Wisconsin, in an email. “The only reason COLA was so high in 2022 and 2023 is because inflation was so high in 2021 and 2022.”
This could be a sign of continued cooling inflation, and rates that might coincide with historic averages during the previous decades. “Prior to 2022, the 30-year COLA average was 2.4%, so hopefully this is a sign that inflation is returning to normal,” Keil said.
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Ways for Social Security Beneficiaries to Earn More
The COLA increases in recent years may be helping retirees cope with current costs. That said, some individuals decide they need more income to support their lifestyles. Taking a part-time job can help retirees bring in additional income. For retirees who prefer flexible, remote work, many jobs can be done entirely online.
If you take benefits and have a job before your full retirement age, you can earn up to a certain amount. If your income exceeds that amount, your benefits will be reduced. Once you reach your full retirement age, there won’t be limitations on what you can earn. Additional supplemental income could come from retirement accounts such as a 401(k), IRA or pensions.
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What Will the Social Security COLA Raise Be for 2025? originally appeared on usnews.com
Update 10/10/24: This story was previously published at an earlier date and has been updated with new information.
