As the cost of living continues to rise, Social Security recipients are always on the lookout for changes that will boost their monthly payments. One of the most anticipated adjustments is the annual Cost of Living Adjustment (COLA), which aims to keep benefits in line with inflation. For retirees aged 62, the COLA adjustment for 2025 could mean an extra $68 in their monthly Social Security payments.
What is the COLA adjustment?
The COLA is an automatic annual increase to Social Security payments to account for inflation. It was first introduced in 1975, ensuring that the benefits retirees and other recipients receive do not lose purchasing power as prices rise. Each year, the Social Security Administration (SSA) calculates the COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter (July through September). This adjustment helps recipients maintain their standard of living despite inflation.
In 2024, the COLA increase was 3.2%, but projections suggest that the COLA for 2025 will be smaller, estimated at 2.5% due to slowing inflation.
While this may seem like a modest increase, for many retirees, especially those on fixed incomes, every bit counts.
How much will retirees at age 62 receive?
If the 2.5% COLA projection holds, retirees who claim Social Security at age 62 in 2025 will see an increase of $68, bringing their monthly payment to approximately $2,778, up from $2,710.
This boost, while not as large as in previous years, will provide some relief to retirees as they navigate rising costs for essentials such as healthcare, housing, and food.
The exact amount of the COLA increase will be officially announced on October 10, 2024, after the SSA finalizes its calculations using September’s inflation data.
Other factors affecting Social Security payments in 2025
Beyond the COLA, several other factors will influence Social Security payments in 2025:
- Full retirement age (FRA): For those born in 1959, the FRA is 66 years and 10 months. If you claim benefits at age 62, your payments will be lower than if you wait until FRA. However, if you wait until age 70, your monthly benefit could increase significantly, by as much as 8% per year.
- Medicare Part B premiums: Many retirees have Medicare Part B premiums deducted from their Social Security payments. If these premiums rise in 2025, it could offset some of the COLA increase. The new premium rates will be announced later this year.
- Social Security taxable income cap: The amount of earnings subject to Social Security tax is expected to rise in 2025. Currently, earnings up to $168,600 are taxed, but this limit could increase to $174,900 next year. This change will primarily affect higher-income earners.
What can retirees do to maximize their benefits?
For retirees aged 62, careful planning is essential to maximize Social Security benefits. While the $68 monthly increase is helpful, it may not be enough to keep pace with rising living costs. Here are a few strategies to consider:
- Delay benefits: Waiting until full retirement age or later to claim benefits can significantly increase your monthly payments. If you can afford to wait, delaying your claim can result in a higher benefit over time.
- Reduce spending: Cutting back on discretionary expenses can help retirees stretch their Social Security payments further. This might involve trimming non-essential costs like dining out or travel.
- Explore additional income streams: Many retirees supplement their Social Security with part-time work, freelance opportunities, or income from investments like IRAs or 401(k) plans. Even a small additional income can make a significant difference when combined with Social Security benefits.
