Cost-of-Living Adjustment (COLA) for 2025: More than 72.5 million Americans will benefit from a 2.5% rise in Social Security and Supplemental Security Income (SSI) payments in 2025. This change guarantees that these benefits preserve their buying power and keep up with inflation. A thorough examination of the 2025 COLA, its computation, and other pertinent revisions may be found here.
A Cost-of-Living Adjustment (COLA): What is it?
A yearly increase made to Social Security and SSI payments is known as a Cost-of-Living Adjustment (COLA). It is intended to guarantee that beneficiaries may maintain their quality of life while mitigating the consequences of inflation. The Social Security Amendments of 1972 included COLA provisions, and automatic yearly increases were implemented in 1975.
Important Points of the 2025 COLA
Increase in Percentage
The COLA for 2025 is set at 2.5 percent.
Benefits from Social Security will rise beginning in January 2025.
Starting on December 31, 2024, SSI beneficiaries will get higher benefits.
Impact on Beneficiaries
Social Security benefits will increase for over 68 million people.
Some people may be eligible for both systems, and there will be an increase of almost 7.5 million SSI participants.
How Does the COLA Get Determined?
The Bureau of Labor Statistics determines the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which serves as the basis for the COLA. The CPI-W’s percentage rise from the third quarter of the previous adjustment year to the current year’s third quarter is reflected in the adjustment.
Base Average CPI-W for 2023: 301.236
Average CPI-W (Q3) for 2024: 308.729
2.5% is the percentage increase.
No COLA is administered if there is no rise in the CPI-W.
The COLA Formula
CPI-W (Q3 Current Year)−CPI-W (Q3 Previous Year)CPI-W (Q3 Previous Year)×100 = COLA Percentage= \frac \text{COLA Percentage}{\text{CPI-W (Q3 Current Year)} – \text{CPI-W (Q3 Previous Year)}}{\text{CPI-W (Q3 Previous Year)}} \times One hundred COLA percentage is calculated as follows: CPI-W (Q3 Previous Year) CPI-W (Q3 Current Year) − CPI-W (Q3 Previous Year) × 100
Using the information provided:
Q3 2024 CPI-W: 308.729
Q3 2023 CPI-W: 301.236
308.729−301.236301.236×100≈2.5% is the COLA percentage.The percentage of COLA is equal to \frac{308.729 – 301.236}{301.236} \times 100 \approx 2.5\%.301.236308.729−301.236×100≈2.5% is the COLA percentage.
In order to protect beneficiaries’ buying power against inflation, Social Security and SSI benefits are adjusted by 2.5% based on this rounded rise.
Important Points:
The Start of the COLA:
Social Security: Changes take effect with payments in January 2025.
SSI: Modifications to January benefits that take effect on December 31, 2024.
Benefits of the COLA: The COLA guarantees that Social Security and SSI benefits maintain their true value by reflecting growing expenses as determined by inflation indexes.
Taxable Maximum Increase: Due to salary growth, the earnings that are subject to Social Security taxes will increase to $176,100 in 2025.
Adjustments to Earnings Limits and Social Security Taxes
Maximum Taxable Earnings
In 2025, the highest income that is liable to Social Security tax will increase to $176,100.
Limits on Earnings
$23,400 under full retirement age (with $1 subtracted for each $2 beyond this amount).
$62,160 is the amount needed to reach full retirement age in 2025 (with $1 subtracted for each $3 earned beyond this amount until the month of full retirement age).
Reaching full retirement age or beyond: There is no earnings cap.
How to View Your COLA Notice
Beginning in December 2024, recipients will be able to view their COLA notices online via their My Social Security account’s Message Center. This recently created notification offers:
specifics of the individual benefit.
precise dates and sums of money due.
Information in basic language that is clear and succinct.
To be informed when their notice is accessible online, beneficiaries can choose to receive alerts via email or text message.
Defending Yourself From Fraud
Vigilance against fraud is emphasized by the Social Security Administration. Recall:
No government agency will ever call, email, or send unwanted communications requesting money or personal information.
Refrain from giving private information or clicking on dubious websites.
For more information, see oig.ssa.gov/report.
2025 Medicare Updates
You may find out more about the 2025 Medicare changes at www.medicare.gov or by contacting 1-800-MEDICARE. In December 2024, recipients of Social Security and Medicare will receive their updated benefit levels.
The background of COLAs
In order to prevent inflation from undermining Social Security payments, automatic yearly COLAs were introduced in 1975. Prior to this, Congressional legislation was the only way to make increases. A quick summary of COLA rates over time is shown below:
14.3% was the highest COLA in 1980.
0.0% is the lowest COLA (2010, 2011, 2016).
Current COLAs:
2021: 1.3%
2022: 5.9%
2023: 8.7%
3.2% in 2024