The Social Security COLA increase for 2025 is all set to take effect in just about three weeks. Many people must be wondering how it will impact their monthly payments, among other things. In early October, the Social Security Administration announced the new COLA. Although it is lower than in previous years, it is still expected to provide a boost to monetary benefits.
How much will people receive in benefits?
Starting in January 2025, 72.5 million Social Security beneficiaries will get a 2.5% increase in their payments due to the annual cost-of-living adjustment (COLA). This annual adjustment will boost monthly payments for people who receive benefits like retirement, survivors, Social Security Disability Insurance and Supplement Security Income (SSI). As per law, federal benefits go up when the cost-of-living increases, which is based on a measurement by the Department of Labor’s Consumer Price Index for Urban Wage Earners and Clerical Workers.
When will the benefit become active?
It will be from January 2025, when the increase starts for Social Security benefits, while for those receiving Supplemental Security Income (SSI), the higher payments will begin on December 31, 2024.
How will you get notified?
Through mail, COLA notices throughout December. Your friend or family member might receive notification before you. It is advised to wait until January before reaching out to them about your mailed notice. However, it is not required to wait for mail to learn about the new benefit amount for 2025, as you can check your COLA notice online through your personal my Social Security account starting in early December, if you are getting Social Security retirement or disability benefits.
How the annual increase is calculated?
To keep up the rising costs, SSA has been adjusting benefits at the beginning of each year, since 1975. The yearly increase is calculated based on changes in the ‘Consumer Price Index for Urban Wage Earners’ and ‘Clerical Workers’ (CPI-W). The Bureau of Labor Statistics calculates this index by looking into the average prices of household goods such as food, housing, and transportation.
Due to a surge in inflation following the pandemic, the COLA has been higher in recent years.
In 2025, the COLA increase is 2.5%, smaller than the 3.2% rise in 2024, and the 8.7% jump in 2023, indicating a slowdown in inflation. In 2022, the increase was 5.9%, while in 2021, it was a smaller 1.3%.
What will be the maximum Social Security Benefit be in 2025?
As per SSA, the amount of Social Security benefits a person can receive depends on when (at what age) they retire. Suppose, if a person retires at full retirement age in 2025, they could get up to $4,018. If a person retires early at the age of 62 in 2025, their benefit would be $2,831, and if they retire wait until 70 to retire in 2025, their maximum benefit would be $5,108. The later a person retires, the higher their monthly benefits will be. It is as simple as that!
It has to be noted that these are the maximum Social Security benefits, and most retirees receive much smaller payments. The monthly benefits will depend on the person’s income before they retire and Social Security checks won’t replace pre-retirement income.
What are the other changes to Social Security in 2025?
To qualify for Social Security retirement benefits, one need to accumulate 40 work credits over their lifetime, with a maximum of four credits earned each year.
In 2025, earning one credit will need wages or self-employment income of at least $1,810, an increase from $1,730 in 2024. In order to earn the complete four credits in 2025, one need to make $7,240, compared to $6,920 in previous year.
The maximum annual earnings that are taxed for Social Security has gone up from $168,600 (in 2024) to $176,100 (in 2025).
If the person is under full retirement age, then there is a limit on how much one can earn while still receiving full Social Security benefits. In 2025, the limit has increased to $23,400. For those who reach full retirement age in 2025, the earnings limit will be $62,160.
Government benefits that make adjustments using COLA
It is not just Social Security that’s affected by the COLA. Other programs like Social Security Disability Insurance, Supplemental Security Income, Medicare and Supplemental Nutrition Assistance Program (including food stamps and other programs) also use COLA to adjust benefits for inflation.
