It takes a simple trip to the grocery store or gas station to see that prices continue to rise. And when you’re budgeting during retirement, every dollar counts. Social Security will increase in 2025 to keep pace with inflation, but whether the increase makes a difference in your budget is another story. In this article, we’ll explain how Social Security raises are calculated and let you know what to expect for 2025.
What Are Social Security COLA Increases?
The government makes cost-of-living adjustments (COLA) for Social Security each year. These adjustments reflect inflation and usually increase benefits by a small percentage. COLAs affect benefits for 71 million American seniors who have Social Security and Supplemental Security Income. If you have Social Security benefits, you’ll see an adjustment beginning in January 2025.
How Are Social Security Increases Determined?
Since 1975, the Social Security Administration (SSA) has used the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the Bureau of Labor Statistics to adjust benefits annually. Before that, Social Security increases were set by legislation.
The CPI-W is a broad metric for how prices change for employed households with income. However, it may not exactly match the inflation impact felt by seniors, who spend money differently than the general population. You might find housing and medical care is a larger part of your budget after retirement, for example.
Increases are determined through a simple calculation based on publicly available data. Here’s the math: The Social Security Administration takes the average price index for the third quarter of the previous year and compares it to the third quarter average of the current year. The difference is the COLA for the next year. The Bureau of Labor Statistics releases September data in mid-October each year.
How Social Security Has Increased In Recent Years
Now that you know how Social Security adjustments are calculated, let’s see how they’ve changed in recent years. Over the past 10 years, the COLA has ranged from a 0.0 to 8.7% increase. You can see the data for each year below.
| Year | COLA Percent Increase |
| 2014 | 1.7% |
| 2015 | 0.0% |
| 2016 | 0.3% |
| 2017 | 2.0% |
| 2018 | 2.8% |
| 2019 | 1.6% |
| 2020 | 1.3% |
| 2021 | 5.9% |
| 2022 | 8.7% |
| 2023 | 3.2% |
| 2024 | 2.5% |
Note: The COLA is announced in the last quarter of one year and affects benefits in the next year. The 2024 COLA of 2.5% affects benefits in 2025.
Does Social Security Always Increase?
Social Security doesn’t always go up. The COLA was zero in 2009, 2010, and 2015. The average increase has been 3.7% since 1975, but this includes large increases of 14.3% and 11.2% in 1980 and 1981. The COLA has never been negative. However, projections show Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) Trust Fund reserves would run out between 2033 and 2035, and the program could only pay 75% of scheduled benefits without a change in legislation.
The Impact of Medicare Premium Increases on Social Security
Medicare Part B premiums are deducted automatically from Social Security checks. Medicare premiums usually increase each year independent of Social Security increases. However, your premium might be modified so your Social Security benefits don’t decrease year over year.
Here’s an example. Let’s say the COLA from one year means you’ll receive an extra $10 per month in Social Security. However, Medicare costs increased by $15 per month that year. In this case, the government would decrease your Medicare payment by $5 so your total Social Security benefits don’t go down from the previous year.
How Much Will Social Security Increase in 2025?
Social Security will increase by 2.5% in 2025 according to the Social Security Administration’s COLA announcement. Social Security recipients will see the increase reflected in benefits payable in January 2025.
If someone was earning a monthly benefit of $1,920 in 2024, they would see an increase of about $48 in 2025. Considering the consumer price index increased 2.6% over the 12 months before October 2024, many retirees might not feel the increase is enough.
Are COLAs Keeping Up With Inflation?
Technically speaking, COLAs do keep pace with inflation. The calculation is based on differences in the consumer price index year over year. That said, many seniors feel COLAs don’t do enough to mitigate the impact of inflation on retirement plans.
The main issue here is that the price index is based on spending by all age groups. If you look at your budget during retirement, you might see categories that rose much more than 2.5% over the year, like healthcare costs or housing expenses.
How To Supplement Social Security Benefits In Retirement
Unless your living expenses are low, it’s unrealistic to depend solely on Social Security for retirement income. Here are a few ways to maximize your retirement income so you don’t have to depend on COLAs:
- Purchase an annuity: An annuity provides guaranteed payments for a term or lifetime and can benefit your spouse or other beneficiaries after you pass away. You can grow an annuity account tax-deferred or purchase an immediate annuity to turn a lump sum into guaranteed payments right away. Annuities help diversify your income strategy in retirement.
- Maximize tax-advantaged accounts: While you’re still working, it’s important to contribute as much as you’re allowed to a 401(k) and/or an IRA. You can make additional catch-up contributions after the age of 50. Annual interest gained on a sizeable account can offset your withdrawals after you enter retirement.
- Continue working: Working part-time can give you extra cash and enjoyment during retirement. Make sure you understand the impact of part-time income on your Social Security eligibility and payments.
- Delay Social Security benefits: You’ll receive the highest Social Security retirement benefits if you put off receiving them until age 70.
Learn How To Protect Your Retirement With an Annuity
In a speech to Congress to introduce social security, President Franklin D Roosevelt said that “The Federal Government assumes one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans.” (FDR Statements on Social Security, Social Security Administration website). Social security was designed to be part of your solution for retirement but not ALL of the solution!
By purchasing an annuity, you can supplement your Social Security income, and enjoy greater stability during your retirement. To discover how much additional income you will need, and the best type of annuity to meet your goals, you’ll want to review your personal financial resources and estimate your retirement needs. A licensed retirement specialist can help you and make this easy. Reach out to a licensed insurance agent to learn how to use an annuity to your advantage.
