Social Security Raises Set for 2025, But Retirees May See Less in Their Pockets

With less than six weeks to go, retirees can anticipate a cost-of-living adjustment (COLA) of 2.5% announced by the Social Security Administration last month. This adjustment takes effect on January 1, 2025.

However, retirees should prepare for a smaller increase than expected. Here’s why the average Social Security bump will be around 20% less than anticipated.

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Understanding the Average Social Security Benefits in 2025

Every October, the Social Security Administration announces the annual COLA for beneficiaries. This practice has been ongoing since 1975, when automatic COLAs were first introduced.

The COLA is determined by comparing the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the current year to the same period from the previous year. The resulting percentage increase, if any, is rounded to the nearest 0.1%.

When the 2025 COLA was revealed, beneficiaries were told to expect an average increase of about $50 per month next year. As of October, the average monthly Social Security benefit for retirees stood at $1,924.35. A 2.5% increase equates to roughly $48.11 added to monthly checks.

Factors Reducing the Take-Home Increase for Most Retirees

Despite the COLA announcement, most retirees won’t actually see an extra $48.11 or even $50 credited to their accounts each month. Fortunately, the discrepancy isn’t due to any wrongdoing; it’s mainly because of rising Medicare costs.

For those enrolled in both Social Security and Medicare Part B, premiums are deducted from Social Security benefits, and those premiums are set to rise in 2025. On November 8, the Centers for Medicare and Medicaid Services (CMS) declared that the standard Medicare Part B premium would increase by $10.30, bringing it to $185.

As a result, the average net increase after implementing the COLA will be approximately $37.81—over 20% less than what most beneficiaries might have initially expected.

It’s essential to note these figures represent averages. Retirees with higher Social Security benefits will face smaller percentage losses from the increased Medicare premiums. Conversely, those with below-average benefits will notice a more significant impact. Additionally, high-income beneficiaries will incur even larger premium increases next year.

Recognizing the Mixed News for Retirees

Information on inflation trends presents both positive and negative aspects for retirees. While the average year-over-year CPI-W increase for the third quarter stood at 2.5%, it slightly dipped to 2.4% in October. This drop is indeed an improvement compared to the more pointed 2.6% inflation rate.

However, some costs that directly affect retirees are rising faster than average inflation rates. For example, medical care services experienced a 3.8% increase year over year. While inflation might decrease further in the upcoming year, it could also rise again, challenging the benefits of the upcoming COLA for many retirees.

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