Beneficiaries of Social Security will face an uptick in their monthly payments starting in 2025, with the inflation rates beginning to break. Assuming this is correct, the cost-of-living adjustment would be in the region of 2.5% and translate to an average boost of $561 annually for recipients. This article examines who will benefit from this adjustment, what this COLA rise might mean, and what it could mean for those reliant on Social Security.
What is COLA?
The COLA raises your Social Security benefit to help you keep up with higher prices and keep up with inflation. A COLA is computed based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers over a particular period. For 2025, COLA will be lower to reflect a more cooled inflation rate compared to the significant increases seen in 2022 and 2023, 5.9% and 8.7%, respectively.
The SSA would make the official COLA announcement in October 2024 based on the review of inflation during this period from July to September. However, as per the current estimate, such a hike would translate into an average monthly benefit bump of about $46.75 with a rise in the average monthly payment at around $1,968.
Who benefits from the hike?
More than 70 million Americans who get Social Security benefits will be covered by the COLA adjustment. They are:
- Retirees: These are the vast beneficiaries who use Social Security for sustenance. The cost of living adjustment will help them in the rise of living costs.
- Disabled individuals: Those receiving SSDI will also benefit from the adjustment upward by the same percentage.
- Survivors and dependents: Similarly, survivors and dependents receiving survivor benefits or dependent benefits based on the earnings record of a deceased worker would also get the COLA rise.
- Supplemental Security Income (SSI) recipients: Beneficiaries qualifying into SSI, an extra source of income for people with limited income and resources, will see a corresponding increase in such payments.
This is an important projected increase for these groups, many of whom rely heavily on Social Security for bare survival needs.
Implications of the COLA increase
While an increase in the Social Security benefits is normally received with excitement among the beneficiaries, considering its implications is important:
- Growing Medicare costs: Yet, a couple of huge factors that might dull the added benefit from the COLA rise will be surging Medicare Part B premiums. For example, in 2025, it is estimated that premiums may surge by around $10.30, eating up part of the additional revenue that beneficiaries would expect from the COLA. The bottom line is that while people might feel like they are getting more money, some of that extra money will turn around and be spent on health care costs.
- Inflationary pressures: While the rate of inflation has moderated in recent months, many of the essential goods and services that seniors need-most notably housing and healthcare-continue to rise in price, and are not appropriately reflected in the CPI-W from which COLA is calculated. This raises concerns that theCOLAs will again fail to reflect actual cost increases experienced by seniors.
- Long-term financial stability: these COLA adjustments play a very important role in keeping people retired or disabled, mostly on fixed incomes, financially stable. However, the advocates are of the view that such adjustments will reflect actual patterns of inflation relevant to the spending patterns of older adults.
It is basic and critical lifeline assistance, as would be expected by so many millions of Americans dependent on such benefits, that the estimated $561 annual increase in 2025 Social Security checks comes with a 2.5% COLA adjustment. This adjustment will help beneficiaries better keep pace with inflation, though increased costs, most notably from healthcare, may reduce this adjustment’s overall impact.
