2025 Social Security COLA: Expected Benefit Increases Explained
According to CNBC, The Social Security Administration (SSA) annually adjusts benefits to keep pace with inflation, with the cost-of-living adjustment (COLA) for 2025 set to be announced on October 10, 2024. In 2024, beneficiaries saw a 3.2% increase, but analysts are forecasting a smaller adjustment for the upcoming year due to cooling inflation.
Currently, around 68 million Americans rely on monthly Social Security benefits, totaling approximately $1.5 trillion. A Gallup survey conducted in April revealed that over a third of retirees consider these benefits a primary source of income.
What is the Social Security COLA?
Since 1975, the SSA has adjusted Social Security benefits annually to account for inflation. This adjustment is determined by changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In recent years, higher COLAs were necessitated by post-pandemic inflation increases, with recent adjustments being:
- 2021: 1.3%
- 2022: 5.9%
- 2023: 8.7%
- 2024: 3.2%
While it’s uncommon for benefits to remain static, it did occur in 2009, 2010, and 2015. The goal of these adjustments is to help seniors cope with rising living costs. Since 2021, the Consumer Price Index has surged by 24.6%. If the COLA for 2025 is set at 2.5%, it would result in a cumulative increase of 23.4%, closely matching inflation.
Anticipating the 2025 Social Security Increase
The SSA will officially announce the COLA for 2025 on October 10, 2024. Predictions from the Senior Citizens League and the Center for Retirement Research at Boston College indicate a potential 2.5% increase, which would be a slight reduction from the 3.2% boost in 2024.
As inflation continues to decline from its post-pandemic peaks, recent data from the U.S. Bureau of Labor Statistics shows a 2.5% rise in average prices since August 2023—the lowest 12-month increase since February 2021. A 2.5% COLA would translate to an average monthly increase of $48, bringing the average check for retired workers to approximately $1,966.
Social Security recipients will receive official notifications about their 2025 benefits in December. However, details can be accessed online via a mySocialSecurity account starting in mid-November.
How is the COLA Calculated?
The COLA is linked to the CPI-W, calculated by the Bureau of Labor Statistics based on average prices for household goods, including food, housing, and transportation. The adjustment for a given year is determined by the CPI-W data from the third quarter of the previous year.
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Changes to Social Security in 2025
To qualify for Social Security retirement benefits, individuals must accumulate 40 work credits over their lifetime, with a maximum of four credits available per year. The threshold for earning four credits in 2024 was more than $6,920, a figure expected to increase in 2025, although the exact amount will be revealed on October 10.
The maximum annual earnings subject to Social Security tax may also rise; in 2024, the cap was $168,600, up by $8,400 from 2023.
Current Average Social Security Benefits
The specific amount of Social Security benefits varies based on factors such as individual earnings history and the age at which benefits are claimed. In June 2024, the average monthly benefit for retired workers was $1,918, while the average for all recipients, including spouses and disabled workers, was $1,781. Notably, half of the seniors receiving Social Security rely on these benefits for at least 50% of their household income, and a quarter depend on them for 90% or more.
Supplementing Social Security with employer-sponsored 401(k) plans or individual retirement accounts (IRAs) can enhance retirement security. Charles Schwab and Betterment are among the top-rated options for IRAs.
When Will the Increase Take Effect?
The COLA for 2025 will begin appearing in benefit checks for most recipients in January 2025, with arrival dates dependent on the recipient’s birth date:
- Born between the 1st and 10th: Check arrives on January 8, 2025.
- Born between the 11th and 20th: Check arrives on January 15, 2025.
- Born between the 21st and end of the month: Check arrives on January 22, 2025.
Certain recipients may see their increases sooner. Those who began receiving benefits before May 1997 will receive their first check of the year on January 3, 2025. Additionally, Supplemental Security Income (SSI) benefits, typically paid on the first of the month, will be disbursed on December 31, 2024, due to New Year’s Day falling on a federal holiday.
The full schedule of Social Security payment dates is available online.
When Can You Start Collecting Social Security?
Eligible workers can begin collecting Social Security benefits at age 62; however, doing so will result in reduced monthly payments compared to waiting until full retirement age.
Full Retirement Age by Year of Birth:
- 1943-1954: 66 years
- 1955: 66 years and 2 months
- 1956: 66 years and 4 months
- 1957: 66 years and 6 months
- 1958: 66 years and 8 months
- 1959: 66 years and 10 months
- 1960 or later: 67 years
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