Retired Americans will get at least a little relief from inflation in 2025—but with an emphasis on little.
On Thursday, the Social Security Administration announced that the 2025 cost-of-living adjustment (COLA) to beneficiaries would be 2.5%. That marked a smaller upgrade than 2024’s increase of 3.2%, and the smallest such inflation-linked increase to Social Security benefits since 2021, when retirees received a mere 1.3% uptick.
“Inflation took a financial toll this past year, particularly on retirees, who often rely on Social Security as a key source of income,” Kelly LaVigne, VP of Consumer Insights at Allianz Life, told Young and the Invested in an interview. “Even with this adjustment, we know many older Americans who rely on Social Security may find it hard to pay their bills. Social Security is the primary source of income for 40% of older Americans.”
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The SSA says 2025’s COLA will affect nearly 68 million Social Security beneficiaries, as well as nearly 7.5 million people who receive Supplemental Security Income (SSI) benefits.
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What Is the Cost-of-Living Adjustment (COLA)?
The cost-of-living adjustment (COLA) is an annual, formulaic change to Social Security benefits that reflects changes in consumer prices over the past year. Specifically, it’s meant to help offset any inflation from the year prior by providing retirees with a higher benefit.
Inflation, in this case, is measured by looking at changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The SSA looks at the percentage increase in CPI-W from the third quarter of the most recent year that a cost-of-living adjustment was made, to the CPI-W from the third quarter of the current year.
If CPI-W increases, Social Security benefits will be raised by the same percentage—rounded to the nearest tenth of a percent—at the start of the following year. If there’s no increase, no COLA will be announced. (That happens infrequently; 2010, 2011, and 2016 are the only three years in which there has been no COLA.)
“The COLA is a vital component of Social Security, ensuring older Americans have an inflation-protected source of income in retirement,” AARP CEO Jo Ann Jenkins says. “This adjustment means older Americans will receive needed relief to help better afford essential items, from groceries to gas.”
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When Will I Receive My Increased Benefit?
The 2025 COLA will start impacting Social Security benefit checks in January 2025, and SSI benefit checks at the end of December.
Here’s a quick look at when Americans receive their first Social Security checks, which hinges on where your birthday falls within your birth month:
| Expected Benefit Arrival Dates | |
|---|---|
| Birthday falls on | Check should arrive |
| 1st-10th | Jan. 8, 2025 |
| 11th-20th | Jan. 15, 2025 |
| 21st-31st | Jan. 22, 2025 |
That said, if you’ve received Social Security benefits since before May 1997, you’ll receive your first 2025 benefit check on Jan. 3, 2025.
Supplemental Security Income (SSI) checks reflecting the new payment will be sent out Dec. 31, 2024. Typically, SSI checks go out on the first of the month, but January’s checks are always pushed up a day because New Year’s Day is a federal holiday.
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How Does the 2025 COLA Compare to Past Years?
Social Security’s annual COLA naturally varies from one year to the next:
| Past COLAs | |
|---|---|
| Year | % Increase |
| 2020 | 1.6% |
| 2021 | 1.3% |
| 2022 | 5.9% |
| 2023 | 8.7% |
| 2024 | 3.2% |
But if it feels like COLA doesn’t always match inflation, that’s because, as mentioned before, COLA is based on CPI-W … but the measure of inflation most of us tend to follow is the plain ol’ Consumer Price Index (CPI). Also, we tend to look at annual CPI in terms of data from across the entire year, whereas COLA is based on a Q3-to-Q3 reading.
For context, check out the following table to see how the CPI-W growth that led to the 2020-24 COLA increases doesn’t quite match up with the corresponding CPI growth in those same years.
| Inflation Rates | ||
|---|---|---|
| Year | CPI-W | CPI |
| 2019 | 1.6% | 1.8% |
| 2020 | 1.3% | 1.2% |
| 2021 | 5.9% | 4.7% |
| 2022 | 8.7% | 8.0% |
| 2023 | 3.2% | 4.1% |
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Other Social Security Changes for 2025
Social Security announced other updates pertaining to taxes and worker earnings limits:
- The amount of covered earnings required to earn a Social Security work credit will increase in 2025. (You need 40 work credits to qualify for Social Security retirement benefits.) For 2025, you must make at least $1,810 in covered earnings during a quarter to receive a work credit, up from $1,730 in 2024. And you can compile a maximum of four work credits per year, at $7,240 in total earnings. (Note: You can earn work credits at a faster rate than once per quarter. For instance, if you made $7,240 in covered earnings during your first month of work, you would earn all four credits for the year.)
- In 2025, the maximum earnings subject to Social Security tax will be $176,100, up from $168,600 in 2024.
- Workers who are younger than full retirement age (FRA), but are collecting Social Security benefits, have an earnings limit of $23,400 in 2025 (up from $22,320 in 2024). That means the SSA will deduct $1 for every $2 earned over $23,400 in 2025.
- Meanwhile, beneficiaries who work and will reach FRA in 2025 will have an earnings cap of $62,160 in 2025 (up from $59,520 in 2024). That means the SSA will deduct $1 for every $3 earned over $62,160 up until the month the worker reaches FRA.
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