In the wake of the pandemic, inflation soared to a degree not seen in decades, wreaking havoc on consumers’ finances and putting pressure on retirees with fixed incomes. But thankfully, inflation has cooled nicely in 2024, leading to some relief in the context of everyday expenses.
At the start of 2024, seniors on Social Security saw their monthly benefits rise by 3.2%. And given that annual inflation has dipped below that level in recent months, the hope is that 2024’s cost-of-living adjustment (COLA) has served seniors reasonably well.
However, given that inflation slowdown, it’s been clear for months that seniors would be looking at a smaller Social Security COLA in 2025 than in 2024. And for quite some time now, there’s been a lot of speculation as to what that raise might entail.
Thursday morning, however, September’s Consumer Price Index was released. And since Social Security COLAs are calculated based on a subset of that index known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, we finally have an answer as to what 2025’s COLA looks like.
Your 2025 Social Security COLA will be 2.5%
In 2025, Social Security benefits will rise by 2.5%. And while that raise may read like a disappointment compared to recent COLAs, it’s important to put it into context.
First, it’s not the smallest COLA to ever come down the pike. On more than one occasion, Social Security COLAs have amounted to 0%. So any lift in benefits is better than none.
Secondly, it’s not even fair to compare 2025’s COLA to recent ones because inflation was truly rampant during those first few post-pandemic years. But this year, that wasn’t the case.
Even the Federal Reserve says that 2% annual inflation is an acceptable level and one that lends to economic stability. This year’s inflation levels haven’t been that far off from the Fed’s target. And so it makes sense that 2025’s Social Security COLA would be smaller than the COLAs received over the past few years.
Plus, remember that because Social Security COLAs are linked directly to inflation, what you lose in one regard, you gain in another. Larger COLAs mean higher levels of inflation — and higher prices. Smaller COLAs mean a slower pace of inflation — and prices that don’t rise as rapidly. So all told, things should largely even out.
Medicare is still the wild card factor
You may be ready to crunch some numbers and see how much more money you’ll get from Social Security next year now that we have an official 2025 COLA on record. But if you’re a Medicare enrollee, you may need to sit tight a bit longer.
Seniors who are enrolled in Social Security and Medicare simultaneously have their Part B premiums deducted automatically from their monthly benefits. But if the standard monthly Part B premium rises a lot this year, it will eat away at your COLA if that’s an expense you’re on the hook for.
In 2024, the standard monthly Part B premium rose by $9.80 compared to 2023. If a similar increase happens this year, it will, unfortunately, leave Medicare enrollees with a less substantial increase in their monthly Social Security checks.
Make the best of 2025’s COLA
All told, Social Security’s 2025 COLA may not be as high as you’d like it to be. But do remember that cooling inflation is a good thing for consumers’ wallets as a whole, and that extends to retirees.
If you’re worried about money in the new year, take some time in the coming weeks to assess your finances and see if it’s possible to make lifestyle changes that give you some breathing room. These could include downsizing your living space or joining the gig economy to generate income that supplements your monthly Social Security benefits.
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It’s Official: Here’s Your Social Security Raise for 2025 was originally published by The Motley Fool
