2025’s Social Security Increase Is The Smallest We’ve Seen In Years

Prices have been out of control in the last five years.

From groceries to mortgages, virtually every product you can think of has gone up. The Social Security Administration noticed this and provided some of the biggest cost-of-living adjustments (COLAs) in over 40 years. These increases helped millions of SSI recipients deal with the cost of living crisis.

But in 2025, their benefit checks won’t see much of a difference. The SSI increase is much smaller than what economists were expecting.

Let’s take a look at how the SSA determines its yearly increases, 2025’s COLA, and how it’ll impact recipients.

How Does The SSA Determine The Cost-of-Living Adjustment?

The SSA adjusts monthly benefit checks almost every year.

Initially, Congress would have special legislative sessions where they’d agree on an appropriate amount. However, since 1975, the SSA has used the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to figure out how much they should raise prices.

This index factors in different spending categories to determine a percentage at the end of each month. The SSA then compares the numbers from previous years to either raise benefits or keep them the same.

What Is 2025’s COLA?

This year’s COLA is much smaller than in previous years as inflation has cooled down from all-time highs.

Recipients will get a 2.5% bump in their benefit checks in 2025.

For example, say you receive the average SSI paycheck of $1,926 each month. With a 2.5% increase, your adjusted COLA is $50, so you’ll get $1,976 starting in January 2025.

This is the smallest increase since 2020 when the COLA was only 1.3%.

Why Is It So Low This Year?

COLAs are mainly in line with inflation and living costs. That said, 2024 has seen inflation level out and get closer to the Federal Reserve’s target of 2%.

Still, some retirees aren’t satisfied. A recent AARP survey highlights that 83% of older adults expect at least a 3% COLA to keep up with their bills.

And if you look beyond raw inflation numbers, you can’t blame them. Prices are still higher, and the core consumer price index was still at 3.3%, almost 0.7% more than next year’s COLA.

No matter which way you look at it, 2025’s COLA won’t make life easier for those who rely on SS to support themselves.

Are Other Benefits or Programs Affected?

COLAs are also tied with programs like Veterans Affairs (VA) payments and disability benefits, which get the same boost as Social Security payments.

Also, Medicare Part B premiums will increase to $185 per month in 2025, a $10.30 increase from last year. Their deductibles will also increase to $257, a $17 boost. It may not seem like much, but when the average SS boost is $50, a large part of it will be eaten up by higher healthcare costs.

Retirees might also have to pay higher taxes than before. The government taxes SS benefits based on something called combined income. This formula factors your gross income, half of your SS, and nontaxable benefits. If you go above the SSA’s threshold ($25,000 for individuals and $32,000 for married couples), you’ll need to start paying taxes.

What Can Beneficiaries Do To Prepare for Future Changes?

Relying on only one source of passive income is not the best idea.

Most pensioners have truly felt the financial pinch with the recent cost-of-living crisis. Add this to the possibility of the SS’s reserves being cut by 2035, and we can only expect many of these vulnerable adults to face more challenges in the coming years.

If you’re still working and plan to retire soon, now’s the time to:

Maximize 401(k) or IRA contributions
Put money away in a high-yield savings account
Rent out a separate property or room in your home
Look into safe dividend-paying stocks

No matter what you do, any of these opportunities will help you diversify your income and adapt to future changes.

The Bottom Line

2025’s cost-of-living adjustment wasn’t as high as in previous years. While it largely kept up with inflation, many recipients are still dissatisfied with their economic situation.

The truth is, that relying on Social Security alone may no longer be the best option for most Americans.

Don’t leave your retirement plan until it’s too late! Be proactive and take control of your financial future starting today.