The Social Security 2025 cost of living adjustment (COLA) is almost here, and beneficiaries are not happy about it. After the trials and tribulations of 2024, when inflation quickly surpassed the 3.2% COLA in the first quarter of the year, beneficiaries of public programs hoped for a higher increase and lower inflation to compensate for the additional savings they had to spend to make ends meet.
Of course, life does not always go as planned, and the ultimate result was a COLA that would enhance benefits by only 2.5%. While this is a positive thing since it signifies that inflation has subsided and prices are no longer rising every time you turn your head, it also means that the rise is so small that it may not cover the additional expenses that seniors and other recipients have incurred.
Average Social Security benefits for retirees in 2025
The mew COLA will be applied on January 1, 2025. The 2.5% number was produced by comparing the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of this year to the average CPI-W for the same quarter last year. Once calculated, the value is rounded to the closest 0.1%.
If we apply this to the average Social Security retirement payment in 2024, which was roughly $1,924.35 per month, a 2.5% rise would result in an additional $48.11 per month. Those with lower paychecks may not even receive that amount, whilst those with larger paychecks may have a little more breathing room, but it comes to reason that their expenses will also be higher, thus the rise will most likely not sustain anyone’s lifestyle.
This disparity between the growth and the spending of seniors has prompted many to advocate that the CPI-W be replaced with the CPI-E, the same metric but weighted toward people aged 62 and up. It would provide a much-needed larger gain, especially given that medical care services increased by 3.8% year over year, which is not a sector that an index aimed toward young professionals places a high value on.
Why will many retirees not see the entire COLA in their accounts?
Despite the dramatic headline, the Social Security Administration will pay out the full amount to beneficiaries regardless of circumstances; nevertheless, there is one price that many have overlooked: an increase in Medicare Part B premiums.
On November 8, the Centers for Medicare and Medicaid Services (CMS) published the premiums, deductibles, and coinsurance rates for all Medicare programs in 2025, informing eligible beneficiaries that the regular premiums will rise by $10.30 per month to $185.
For anyone wondering how this relates to receiving less money from your checks, Medicare Part B premiums are automatically taken from monthly Social Security payments for everyone enrolled in both Social Security and Medicare Part B.
This is done to ensure that medical coverage is always paid on time and before any other expenses may claim the entire check, leaving some people without the essential funds, but it also means that the average take-home pay rise once the COLA goes into effect will be roughly $37.81. For those who can do the math, their paychecks will be 20% smaller than they might have expected after hearing the COLA announcement last month.
While this may appear to be a problem only for those with lower checks, as those with higher benefits will receive a larger increase, the reality is that high-income beneficiaries pay higher premiums for Medicare Part B and will see greater premium increases next year, causing their checks to shrink.