Starting October 2024, Social Security will implement several key changes impacting millions of Americans. Among the most anticipated updates is the 2.5% cost-of-living adjustment (COLA), a smaller increase than the 3.2% adjustment in 2024. This reflects cooling inflation, marking the smallest rise since 2021. While the COLA ensures that benefit checks maintain purchasing power amid inflation, other changes may also affect beneficiaries, such as adjustments to work credits and Social Security tax limits.
What is the 2025 COLA?
The Social Security Administration (SSA) calculates the annual COLA based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In 2025, beneficiaries will receive a modest 2.5% increase, translating to an average rise of approximately $48 per month for retired workers. This brings the average monthly check to $1,968. Social Security recipients can expect official notices in December or access their updated benefit details through their mySocial Security account in mid-November.
The 2.5% adjustment, although lower than in the past few years, still helps cushion retirees and other beneficiaries against inflation. Historically, COLA has fluctuated significantly, from as low as 1.3% in 2021 to 8.7% in 2023, driven by rising consumer prices in the post-pandemic period.
How COLA is determined
The SSA calculates the COLA using data from the Bureau of Labor Statistics’ CPI-W, which tracks changes in the prices of everyday goods such as housing, food, and transportation. The third quarter CPI-W is compared year-to-year to determine the percentage adjustment. For 2025, the relevant data was collected from July to September 2024.
The ongoing decline in inflation led to this lower COLA, which reflects easing price pressures compared to the sharp increases seen in 2022 and 2023.
Other changes to Social Security
Beyond the COLA, several other updates will affect Social Security:
- Work Credits: To qualify for Social Security benefits, workers must accumulate 40 credits over their lifetime. In 2025, each credit will require $1,810 in earnings, up from $1,730 in 2024. Earning the maximum of four credits annually will require a total income of at least $7,240.
- Social Security Tax: The maximum earnings subject to Social Security tax will rise to $176,100, an increase from $168,600 in 2024. This change ensures that higher-income earners contribute more to the Social Security system.
- Earnings Limits: For those under full retirement age, the earnings limit—the amount you can earn before Social Security withholds part of your benefits—will increase to $23,400 in 2025. The limit for those reaching full retirement age will rise to $62,160.
What the 2025 changes mean for retirees
Retirees, many of whom rely on Social Security as a primary source of income, will experience a smaller increase in their benefit checks compared to recent years. According to the SSA, around half of retirees depend on Social Security for at least 50% of their income, while one-quarter rely on it for 90% or more. The 2025 COLA may not significantly boost purchasing power but remains a vital adjustment in maintaining the value of benefits.
Retirees are encouraged to plan their finances carefully, supplementing Social Security benefits with other income sources, such as pensions, 401(k) plans, or IRAs, to better manage rising living costs.
