2025 Social Security Boost: Discover the New Benefit Amount Headed Your Way!

If you’re a Social Security beneficiary, you’ll be glad to know that your benefits will see a tiny increase next year (simplified, a cost-of-living adjustment, or COLA). Yet the rise will be less than in years past, which may be something of a surprise. Specifically, that means while COLA adjustment was 3.2% in 2024 and went significant up to 8.7% in 2023, this year, it is projected to be less.

The Social Security Administration said that the COLA for 2025 is 2.5% and therefore will generate an average monthly increase of approximately $50 in payments. The adjustment is designed to help retirees and other beneficiaries pay for the rising costs of essentials and is unlikely to fully offset the broad rise in living expenses as inflation tightens across everything from house prices to wages.

Small increase in Social Security benefits for 2025

This adjustment will be applied by Social Security on the final payment cycle of the year. This increase will appear in December 2024 payments, which will be disbursed in January 2025. Federal SSI (Supplemental Security Income) payments, up to the monthly benefit rate, will also be increased by 2.5% beginning in the January 2025 payment; this measure also covers.

How the COLA adjustment is calculated

The Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to set the COLA. We use the computation of price changes for the third quarter of each year, from July through September, in determining it.

It is basically the annual growth of the prices as a whole during a year relative to their value in the third quarter preceding the year. The CPI-W tracks the general inflation but doesn’t perfectly match what retirees are spending because it is for the spending patterns of working, active individuals, not retirees.

Why COLA doesn’t always reflect the real inflation for retirees

The one major criticism of the COLA calculation is that it relies on the CPI-W, an index that doesn’t reflect spending patterns among retirees, most of whom spend a larger percentage of their income on healthcare.

One part of this index computes the inflation rate relative to workers under 62 years of age so it doesn’t truly reflect the spending patterns of retiree populations. An increasing proportion of the income of retirees is spent on health care (an area that has historically cost a lot more than what one would spend on food or housing).

Impact of medical costs on retirees

Medical services have been increasing at a rate higher than general inflation, with an annual increase of 3.6% to 4.5% for medical services and hospital services, respectively. Younger people typically spend around 7% of their budgets on medicine, while older people tend to spend 15% or more of their income on health care.

While any bit of added bonus is always welcomed, a 2.5% bump to benefits might not quite be enough to cover the actual rise in living expenses, particularly for those leaning heavily upon Social Security payments. Although the increase in the adjustment is modest compared to inflation in general, costs in certain areas, such as healthcare, remain above average and continue to keep many retirees from being able to cover costs adequately.

Outlook for the coming years

Brave new economics will compel Social Security to continually review and adjust the COLA annually. This year’s Social Security benefit boost may not be as generous as some would have hoped, but the aim is to give modest relief to beneficiaries.

The next discussion may be regarding changing the COLA calculation so it more reflects the retirees’ spending behavior and the cost of health care specifically.

Overall, the increase in COLA for 2025 is smaller than in recent years, but it contributes to keeping purchasing power constant when goods and services critical to its beneficiaries’ lives become more expensive.

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