Social Security Recipients to See Modest 2.5% Increase in 2025

Social Security beneficiaries receive an automatic cost-of-living adjustment (COLA) each year to help their benefits keep pace with inflation.

Some individuals collect Social Security payments for decades. Thus, it would be unfair to restrict them to the same monthly amount annually.

In 2025, Social Security benefits will see a 2.5% COLA, which may not meet expectations for several reasons.

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Smallest COLA in Recent Years

While a 2.5% COLA is not the lowest ever announced—there have been years with a 0% adjustment—context matters. Compared to recent increases, this year’s adjustment feels minimal.

Seniors received a 3.2% COLA increase in January this year, following an 8.7% rise the previous year, and a 5.9% increase the year before that.

The lower COLA suggests that inflation may be easing after a challenging few years. However, a 2.5% adjustment can hardly be celebrated, especially after the more generous increases of recent years.

Why COLAs Often Fall Short

The modest 2.5% increase reflects the relatively stable inflation this year, but even when adjustments have been larger, they often haven’t kept pace with inflation.

According to the nonpartisan Senior Citizens League, Social Security beneficiaries have lost 36% of their purchasing power since 2000, highlighting the inadequacy of COLAs.

The formula for determining COLAs is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Many beneficiaries do not fit this profile, which may lead to discrepancies between the COLA and the actual costs faced by seniors.

Strategies to Manage a Limited COLA

You might feel disheartened to see only a 2.5% increase in your Social Security payments. This adjustment may not offset potential increases in Medicare Part B costs.

To mitigate the impact of a lower COLA, consider seeking supplemental income through part-time work.

Fortunately, the gig economy offers numerous opportunities that can be both enjoyable and financially rewarding. Examples include:

• Performing music at local venues
• Selling baked goods at markets if you enjoy cooking
• Caring for pets if you’re an animal lover
• Building custom furniture if you have the skills

While you might need to consider less appealing options, like driving for a ride-hailing service, boosting your income can offset the limitations of next year’s COLA. Engaging in freelance work may also enhance your mental and emotional well-being.

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