Social Security Updates: What to Expect in 2025
For retirees, Social Security provides more than just a monthly check; it forms a crucial financial support system for their lives.
According to research from the Center on Budget and Policy Priorities (CBPP), the poverty rate for adults aged 65 and over stands at 10.2% when accounting for Social Security benefits in 2022. Without this essential program, the CBPP estimates the rate would skyrocket to 38.7% for those same individuals!
Annual surveys from Gallup over the past twenty years underscore how vital Social Security income is for self-sufficient living among retirees. Between 80% and 90% of retired individuals reported relying on their monthly benefits to manage living expenses, with 88% affirming this in an April 2024 survey.
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Given Social Security’s critical role in managing expenses, it’s no wonder the announcement of the 2025 cost-of-living adjustment (COLA) on October 10 was a key event this year.
2025 COLA Expected to Exceed Average for Fourth Year in a Row
The COLA that Social Security provides is designed to help seniors cope with inflation. When prices for goods and services rise, ideally, Social Security benefits should increase by the same percentage, protecting buying power.
Historically, however, raises in the 2010s were minimal. Only two out of ten years saw increases above 2%. Notably, there was no COLA in 2010, 2011, and 2016 due to deflation.
In contrast, Social Security recipients have enjoyed significant increases in recent years. They received 5.9%, 8.7%, and 3.2% raises in 2022, 2023, and 2024, respectively. The 8.7% increase in 2023 marked the highest percentage increase in 41 years and the largest nominal increase since the program began.
Looking ahead to 2025, beneficiaries can expect a 2.5% increase, slightly above the 15-year average of 2.3%. While this is the smallest percentage increase since the 1.3% in 2021, it should still be welcome relief after several years of considerable inflation. Retired workers will likely see their monthly benefits rise by about $49 to $1,976. For workers on disability and survivor beneficiaries, average monthly payments are set to increase by $38 to $1,580 and $1,551, respectively.
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Challenges in Benefiting from the 2.5% Increase in 2025
The phrase, “Don’t count your chickens before they hatch,” rings true for retirees poised to receive the 2.5% COLA next year. Many are likely to lose a significant portion of this increase.
The Medicare Trustees Report, published in May, predicts a 5.9% increase in Part B premiums to $185 monthly in 2025. For retirees using traditional Medicare, this cost is typically deducted from their Social Security checks. Though monthly payouts are rising, the expected Part B premium hike will take a chunk of the COLA increase, meaning most retirees may not see the full benefit of their raise.
This is just one of the issues retirees will face in 2025.
Furthermore, continued increases to COLAs are exposing more retirees to the taxation of Social Security benefits. In 1983, Congress passed the Social Security Amendments under then-President Ronald Reagan, which included adjusting the full retirement age and tax rules. Since 1984, if provisional income exceeds certain thresholds—$25,000 for single filers and $32,000 for couples—up to 50% of benefits can be taxed. This threshold had not changed since its inception. In 1993, additional tiers were introduced, making up to 85% of benefits taxable for higher incomes ($34,000 for singles and $44,000 for couples). As COLAs rise and beneficiaries’ incomes increase, more retirees will find themselves subject to tax on their Social Security benefits.
With rising Part B costs and the long-standing tax rules, many retirees are unlikely to receive the full advantage of their 2.5% COLA in 2025.
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