COLA 2025: New social security to bring relief to millions of retirees
Social Security provides crucial financial support for millions of older Americans, many of whom rely heavily on these benefits to make ends meet. Retirees who draw most, or all, of their income from Social Security also depend on the programme's annual cost-of-living adjustments (COLAs) to keep pace with their expenses.
Last month, the Social Security Administration revealed that benefits will receive a 2.5% COLA increase in 2025. Here’s an in-depth look at what this means, both the positives and the potential challenges.
A Smaller raise than recent years
Historically, a 2.5% Social Security COLA isn't the worst on record—some years have seen adjustments below 2% or even no increase at all. However, many recipients feel the pinch, as this is the smallest raise in years. For comparison, Social Security benefits saw a 3.2% increase at the start of 2024, while 2023 delivered a record-breaking 8.7% adjustment. By comparison, the 2025 increase feels “awfully meager,” especially to those used to more significant boosts.
Medicare part B costs rise, reducing gains for many seniors
Adding to the challenge is the anticipated increase in Medicare Part B premiums, set to rise from $174.70 to $185 per month in 2025. This additional $10.30 monthly cost will reduce much of the impact of the 2.5% Social Security raise. Many seniors enrolled in both Social Security and Medicare will feel this hit particularly hard. Without the rise in Medicare Part B costs, the average Social Security recipient could expect a $49 monthly increase from the new COLA. But with the Medicare hike factored in, that gain shrinks to around $39 for many older Americans.
A slower inflation rate signals some relief
Despite the modest increase, the upside is that the smaller COLA is a sign of cooling inflation. In recent years, large Social Security adjustments have followed periods of rapid inflation, where higher monthly benefits came with reduced buying power due to rising prices. In contrast, a smaller COLA often reflects a slower rate of inflation, which means seniors may experience more stable living costs and potentially maintain similar purchasing power as in 2024.
The relationship between COLAs and inflation aims to create a balance, and if inflation continues to stabilise, 2025 could bring a more manageable financial year for seniors who rely heavily on Social Security.
Planning beyond social security
While the 2025 COLA brings mixed news, financial experts suggest that seniors supplement their income beyond Social Security where possible. For those who rely primarily on monthly benefits, 2025 may feel more manageable if inflation continues to ease, keeping essential costs stable.
How to unlock a $22,924 social security bonus
For retirees feeling behind on savings, there may be untapped strategies to increase Social Security income. Several “Social Security secrets” can potentially boost annual retirement income, with one simple method reportedly adding up to $22,924 more each year. Experts advise exploring these techniques to maximise benefits and increase retirement peace of mind.