SOCIAL SECURITY

What changes will beneficiaries see in their Social Security payments starting in 2025?

Social Security benefits will increase in January 2025. With the April CPI figures, we can now update our forecast for the 2025 COLA.

Each year, the Social Security Adminstration applies a Cost-of-living adjustment (COLA) to the benefits offered to millions of retirees, people with disabilities, and their eligible family members. In rare cases where prices trend downward, a COLA is not offered.

How is COLA calculated?

The COLA is calculated based on the annual increase in the Consumer Price Index for Salaried Workers in Urban Areas and Administrative Workers (CPI-W).

To determine this, SSA compares the CPI-W for the third quarter of the year - July, August, and September - before the CPI-W for the current year's third quarter. The difference between one and the other will be the equivalent of the increase in COLA. In 2023, the increase was 8.7%, the biggest increase in four decades.

This year, a 3.2 percent increase was tacked onto benefits, leading the average Social Security payment to rise from $1,779 for retired workers (those sent to spouses and survivors tend to be lower) in January 2023 to $1,909 in January 2024. One might notice that this increase is more than 3.2 percent, and that is because the COLA is not the only variable that impacts the average benefit amount.

What factors influence the average Social Security payment?

Each year, a new set of retirees begin claiming Social Secuirty benefits. Due to inflation, these workers’ incomes tend to be higher than those who started receiving benefits in the past. Since your Social Security check is determined by the average income you earned over your career, the average tends to increase each year, over and above the increase offered by the COLA. Critically, however, not all beneficiaries benefit from the rise in the average, as the majority only see their benefit increase due to the COLA.

Updated 2025 Social Security COLA forecast

In April, the CPI-W, the index used to calculate the annual Social Secuirty COLA, rose 0.32 percent, bringing the total increase for 2024 thus far to 1.3 percent. When adding on the increase between October and the new year, average prices have increased by 1.8 percent. Annually, compared to last April’s figures, the CPI-W has tracked a 3.4 percent increase in average prices. If we continue to see CPI reports like those seen in the first four months of this year, the COLA likely offered in 2025 exceeded that offered this year. For that to happen, average prices would have to rise by 1.4 percent by the end of September or by 0.28 percent over the next five months. However, before one begins to celebrate, there is still plenty of time for inflation to reverse course and for prices to fall. While this would lead to a smaller COLA in 2025, the purchasing power of seniors would begin to build once again, which is a great gain in the short and long term.

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