Increase in Social Security Checks – The Extra Money Retirees Will Receive From the New 2025 COLA

Whether you’re already receiving Social Security checks or expecting them in the future, it’s crucial to know how economic changes affect your benefits. The annual adjustments to Social Security payments may seem complicated, but grasping the basics can help you better plan your financial future.

Increases

You’ve probably noticed that prices for goods and services rise over time. This increase, known as inflation, has been a part of life for as long as you can remember. When you were working, you might have received raises or changed jobs to counteract the effects of inflation.

However, once you retire and rely primarily on Social Security, it becomes much harder to offset these rising costs. Without adjustments to your benefits, inflation could significantly erode your purchasing power, making it difficult to maintain your standard of living.

To address this issue, the Social Security Administration (SSA) implemented the Cost-of-Living Adjustment (COLA) in 1975. Before COLA, increases in Social Security benefits required special acts of Congress. Now, the COLA ensures that your benefits keep pace with inflation, helping to maintain your purchasing power over time.

Calculated

The annual increase in your Social Security check is determined by the COLA, which is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Knowing CPI-W can help clarify how the COLA is calculated.

The CPI-W is a subset of a broader price index that measures how prices change over time. Specifically, the CPI-W tracks about 200 goods and services commonly purchased by urban wage earners and clerical workers. The index is weighted, meaning that some items have a greater impact on the overall calculation than others, based on how much these households typically spend on them.

To calculate the COLA, the SSA takes the average CPI-W for the third quarter of the year (July, August, and September) and compares it to the same period from the previous year. The percentage change between these two averages determines the COLA, which is then applied to adjust not only Social Security checks but also other SSA benefits.

Future Checks

Several factors influence the amount of your Social Security check, including your full retirement age, work history, contributions to Social Security, and any disabilities you may have, particularly if you receive Social Security Disability Insurance (SSDI) benefits. Recent years have seen significant inflation due to global economic disruptions, such as the COVID-19 pandemic.

As inflation begins to stabilize, experts are forecasting more modest COLA increases. For example, the Senior Citizens League, a non-profit organization focused on issues affecting older Americans, has projected a 2.6% COLA increase for 2025. This adjustment is expected to take effect in January 2025.

Even though a 2.6% increase may seem small compared to the high inflation rates of recent years, it is designed to help your Social Security benefits keep pace with rising living costs. Staying informed about these adjustments can help you manage your financial expectations and plan for your future.

As you navigate your retirement years, knowing how your Social Security benefits are calculated and adjusted is key to maintaining your financial health. By keeping an eye on economic trends and how they affect your benefits, you can better prepare for any changes that may come your way.

FAQs