While the inflation rate has been easing downward, retirees’ budgets are still being stretched pretty thin. Over the past few years, above-average inflation has meant significant Social Security cost-of-living adjustments. Will this trend continue? How big of a Social Security COLA will retirees get in 2025?

What Was The Social Security COLA For 2024?

The Social Security COLA for 2024 was 3.2%. While this SS COLA was much higher than most years, it was still far lower than the 2023 Social Security COLA.

What Was The Social Security COLA For 2023?

Retirees received a whopping 8.7% Social Security COLA for 2023. While this was a considerable increase in income for many retirees, it has likely barely kept up with their increased living costs.

How Big Will The 2025 Social Security COLA Be?

We will have to wait until October for the actual 2025 SS COLA to be announced. But you should be prepared for this number to be the lowest we’ve seen in the past few years. The 2025 Social Security COLA could be below 2%.

If we used January’s reading of the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, the Senior Citizens League estimates 2025’s Social Security COLA at just 1.75%. However, at this stage in the year, next year’s final COLA is likely to be different. Either way, retirees receiving Social Security are on track to see a much smaller COLA in 2025 than in 2023 or 2024.

How Will The 2025 Social Security COLA Be Calculated?

To calculate the Social Security cost-of-living adjustment for 2025, the Social Security Administration (SSA) uses the average inflation in the third quarter, based on the CPI-W, to calculate how much of an increase in Social Security benefits will be needed for the following year.

Does The Social Security COLA Matter To Retirees?

Social Security is a significant part of many Americans’ retirement income stream. For some, it is their primary source of income for retirement. I hope you have a fun financial planner who has done a fabulous job for you that you don’t even notice the Social Security COLA each year. Sadly, this is not the case for many retirees. According to the Social Security Administration, around 12% of men and 15% of women rely on Social Security for more than 90% of their retirement incomes.

For 2024, the average Social Security check averaged $1,907 per month.

What Is The Maximum Social Security Benefit?

According to the Social Security Administration, the maximum income benefit will depend on the age when you retire and begin taking benefits. For example, if you retire at full retirement age in 2024, your maximum Social Security benefit would be $3,822. However, if you retire early at 62 in 2024, your maximum Social Security benefit would be $2,710. If you wait to retire at age 70 in 2024, your maximum benefit would be $4,873.

Keep in mind these are the maximum Social Security benefits. Most retirees receive far less income from Social Security. Your monthly amount will be determined based on your income before you retire, and keep in mind that these checks won’t come close to replacing your pre-retirement income. You should do some additional retirement planning to ensure you can maintain your standard of living in retirement.

How To Get A Personalized Social Security Estimate

As a Fiduciary Financial Planner, I encourage you to download your Social Security estimate from ssa.gov. It will give you the estimated retirement benefits you can expect based on your work history and the age at which you would like to begin receiving benefits. These estimates are typically updated annually.

Knowing your potential Social Security benefits can help you understand what else to do to plan to reach financial independence.

Social Security benefits were not meant to replace your entire income in retirement, and you will likely need to invest in IRAs, Roth IRAs, 401(k)s, or other retirement accounts. On a brighter note, Social Security is a lifetime benefit that should pay out as long as you are alive.

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