There are two more months of inflation data to go. But as of now, some estimate that Social Security benefits could increase by 2.57% in 2025 due to cost-of-living adjustments.
Some retirees, whose average benefit is about $1,840 per month, could see an additional benefit of about $47 per month starting in 2025. However, keep in mind that this is before the Medicare Part B premium increase that will be announced in late 2024.
Inflation has subsided over the past year, so it won’t be a big increase. And if this estimate is correct, the COLA increase would be a slight decrease from the 3.2% increase in benefits for over 71 million people in 2024.
Overall, retirees and those receiving Supplemental Security Income benefits could see a fairly average increase.
What many don’t understand about how COLAs work
I’ve seen some questionable advice online that suggests you might be better off retiring in 2024 rather than 2025 to lock in next year’s COLA increase. But that advice doesn’t make sense on the surface.
Protect Your Assets: The Best High Yield Savings Accounts for 2023
Most people don’t realize that if you’re at least 62 years old in 2024, you’ll automatically get next year’s COLA benefit, even if you haven’t filed for Social Security yet.
“COLAs should not be used to determine your retirement date, because they’re automatically factored into the benefit calculations used by Social Security,” says Mary Johnson, an independent Social Security and Medicare policy analyst who has been forecasting COLA increases for several years.
“In other words, your projected benefit is adjusted for inflation even before you claim it.”
The Social Security Administration confirmed that you can get cost-of-living benefits starting the year you turn 62. This is true whether you wait until your full retirement age, currently 67 for those born after 1960, or if you wait as long as possible to claim a higher monthly benefit at age 70. The Social Security Administration notes that the longer you delay filing, the higher your monthly benefit will be until you turn 70, regardless of your full retirement age.
“You will receive a cost-of-living increase in your benefit beginning the year you turn 62. Your benefit will be adjusted annually to reflect any increases in the cost of living as measured by the Consumer Price Index,” Social Security Administration spokesman Darren Lutz said.
Moody’s chief economist Mark Zandi said Moody’s is forecasting a 2.6% increase in COLAs, which is in line with the Senior Citizens League’s numbers.
“Inflation is subsiding as the effects of the pandemic and the Russian war, which caused high inflation in 2021 and 2022, are largely in the past,” Zandi said.
The Social Security Administration releases the actual cost of living adjustment figure each October after more data on inflation is known.
The third quarter inflation figure for the current year is compared to the third quarter of last year to calculate the next COLA figure. The next August Consumer Price Index data will be released by the U.S. Bureau of Labor Statistics on September 11th. The September CPI will be released on October 10th.
The formula used to calculate the annual inflation adjustment is based on the monthly changes in the Consumer Price Index for Urban Wage Earners and Clerical Employees for July, August, and September.
Social Security Benefits Vary Widely
The amount you receive in Social Security retirement benefits each month depends on a variety of variables, including how much you have earned on average over the years, how many years you have worked, and the age at which you start claiming benefits. Also, your spouse’s income (including the income of a divorced spouse) can affect the amount of your final benefit.
Inflation is a big headache for people with limited income.
About 71% of 2,016 seniors who responded to an online survey conducted by the Senior Citizens League in July said one of their biggest concerns about retirement is that rising inflation will force them to dip into their savings. More than three-quarters, or 78%, said they have more money each month to spend on basic necessities such as housing, food and medicine than they did last year.
