Its Official: The New COLA For Social Security Benefits Has Been Revealed

On October 10, 2024, the Social Security Administration announced its annual cost-of-living adjustment, aka COLA, for Social Security benefits in 2025. As predicted, the COLA increase for next year will be 2.5%.

Previously, we've covered various topics on Social Security figures and related to COLA math, including how those who receive a monthly benefit above the national average should also expect an above-average COLA (despite the percentage being the same for everyone). We've also worked to get to the bottom of recent reports from SSA about the future of Social Security (in short, Social Security funding won't run out, but things could certainly be better for recipients over the next decade-plus).

With all that in mind, the federal government's October press release on COLA makes clear a few key figures. For one thing, maximum earnings subject to Social Security tax is going up in 2025, from $168,600 to $176,100. The update also notes that "for the first time," beneficiaries will receive an improved notice form about their personal cost-of-living adjustment. This is aimed at making the information easier to understand, and it will be printed on a single page for a streamlined layout of only the most pertinent facts. Speaking of the facts, let's return to the 2.5% COLA rate for 2025.

A 2.5% COLA boost is certainly not as financially beneficial when compared to the increases of recent years. For example, while 2024's COLA was modestly higher at 3.2%, in 2022, it was 8.7%. However, keep in mind that these annual increases correspond with the country's inflation (hence, its name, cost-of-living adjustment), so COLA is designed to keep Social Security beneficiaries on an even keel, regardless of what the economy is doing around them. Hypothetically speaking, a 2.5% increase should track with a roughly 2.5% increase in the actual cost of living, keeping financial stability the same for retired people making use of their Social Security benefits.

The Social Security Administration notes that 2025's adjustment of 2.5% falls in line with the average COLA figures calculated out over the preceding decade — averaging at 2.6% per year. The increases will take place starting in January 2025 (with adjustment payments for SSI starting on December 31, 2024). Importantly, it's essential that beneficiaries remember that they don't have to do anything at all to receive this adjustment. It's an automatic increase applied by SSA to your benefits and is uniformly provided to every one of the 68 million recipients claiming benefits by the federal government. If you receive benefits through Social Security, you should expect your notice of the increase sometime in December.

A 2.5% bump is a nice addition, but it's not going to make a huge splash for most Social Security recipients. The average Social Security monthly check for August 2024 was $1,920.48, making the average COLA increase in 2025 $48.01 per month. It's nice to have, but it's not revolutionary by any means. Although, it's important to note that Social Security isn't meant to be revolutionary, but rather a partial replacement to the income you relied on throughout your working life.

If this increase won't cut it for your needs, though, you still have options. For example, those who haven't reached full retirement age (of 66 or 67) and have been claiming benefits for less than a year might consider using a Social Security rule to increase their monthly benefit by resetting the clock on their contributions (note, this do-over can only be done once). Going back to work and pausing your benefits can add crucial contribution years to your tax record, while improving your benefit value in the process. Moreover, by resetting your timeline, you move back the start date for your benefits — this will allow you to access full benefits at 66 or 67, or you can wait until you reach an even older age, with the 8% increase taking effect for every year you wait (until it maxes out at 124% at 70).

Even if these don't work for you, though, taking on a part-time job or returning to the workforce full time will allow you to set more money aside in your own retirement accounts, building more value in the financial resources that will help see you through your golden years in style.