how much raise will social security get in 2025

4 min read 14-11-2024

how much raise will social security get in 2025

Social Security COLA: What to Expect in 2025

Social Security provides a vital lifeline for millions of Americans, offering financial security during retirement and disability. Each year, the program adjusts benefit payments to account for inflation, using a mechanism known as the Cost-of-Living Adjustment (COLA). With inflation still a significant concern, many are wondering: how much of a raise can Social Security recipients expect in 2025?

While the exact figure remains unknown, analyzing current economic data and past trends provides valuable insights into what's likely to happen.

Understanding the COLA Calculation

The Social Security Administration (SSA) uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate the COLA. This index tracks the average change in prices for a basket of goods and services commonly purchased by urban wage earners and clerical workers.

The COLA is determined by comparing the CPI-W from the third quarter of the current year (July-September) to the third quarter of the previous year. The percentage increase in the CPI-W from one year to the next determines the COLA for the following year.

For example, if the CPI-W increased by 2.5% from the third quarter of 2024 to the third quarter of 2025, Social Security benefits would increase by 2.5% in 2025.

[Source: Social Security Administration, "Cost-of-Living Adjustments" (Accessed October 26, 2023), https://www.ssa.gov/oact/cola/]

Predicting the 2025 COLA

Currently, it's impossible to pinpoint the exact 2025 COLA, as the third-quarter CPI-W data is yet to be released. However, analyzing recent economic indicators and historical data can give us a preliminary idea.

Inflation remains a concern: Although inflation has cooled somewhat from its peak in early 2023, it's still hovering above the Federal Reserve's target rate. This suggests that the CPI-W could see a moderate increase in the third quarter of 2024, potentially pushing the 2025 COLA to a similar level.
Historically high COLAs: The last few years have witnessed historically high COLAs. In 2022, the increase was 5.9%, while in 2023, it reached 8.7%. This suggests that the upcoming COLA could potentially be more modest, as inflation is expected to decline further in the coming months.
Economic uncertainties: Factors like the war in Ukraine, global supply chain disruptions, and rising interest rates contribute to economic uncertainties that could impact inflation and, consequently, the COLA.

[Source: The Senior Citizens League, "Inflation and the Cost of Living," (Accessed October 26, 2023), https://www.theseniorleague.org/inflation/]

Impact of the 2025 COLA on Social Security Recipients

The COLA affects millions of Americans who rely on Social Security for their income. A higher COLA means greater purchasing power and financial security for retirees, individuals with disabilities, and their families.

Example: A retiree receiving a monthly Social Security benefit of $1,800 in 2024 would see their benefit increase to $1,962 if the 2025 COLA is 8.7%. This could provide significant relief from rising costs and help maintain their standard of living.

However, even with a modest increase in COLA, it's important to remember that inflation has eroded the purchasing power of Social Security benefits over the years.

[Source: Center on Budget and Policy Priorities, "How Inflation Impacts Social Security Benefits," (Accessed October 26, 2023), https://www.cbpp.org/research/social-security/how-inflation-impacts-social-security-benefits]

Beyond the COLA: Addressing Social Security's Future

While the COLA plays a crucial role in protecting Social Security recipients from inflation, it doesn't address the long-term financial sustainability of the program. The Social Security Trust Fund is projected to be depleted by 2034, raising concerns about the future of benefits for current and future generations.

Addressing this challenge requires addressing the fundamental structure of Social Security and exploring long-term solutions, such as:

Increasing the retirement age: Gradually raising the full retirement age could help ensure the program's solvency by delaying benefit payments.
Raising the taxable earnings limit: Extending the amount of earnings subject to Social Security taxes could generate additional revenue for the trust fund.
Reducing benefits for higher earners: This could ensure that the program provides a safety net for those who need it most while reducing strain on the system.

These are just a few potential solutions. Finding the best path forward will require careful consideration, political will, and a commitment to ensuring the program's longevity for future generations.

[Source: Congressional Budget Office, "Social Security: Key Issues and Policy Options," (Accessed October 26, 2023), https://www.cbo.gov/publication/58406]

Conclusion

While the exact 2025 COLA remains unknown, analysis suggests a moderate increase is likely. The COLA will provide some protection against inflation, but it's crucial to remember the long-term financial challenges facing Social Security.

It's essential to stay informed about the program's financial health and the policy discussions surrounding its future. This knowledge empowers us to advocate for solutions that will ensure the sustainability of Social Security for generations to come.

Additional Resources:

Social Security Administration website: https://www.ssa.gov/
The Senior Citizens League: https://www.theseniorleague.org/
Center on Budget and Policy Priorities: https://www.cbpp.org/
Congressional Budget Office: https://www.cbo.gov/