In 2025, the typical Social Security payment distributed to the collective 68 million beneficiaries is anticipated.
In 2025, the typical Social Security payment distributed to the collective 68 million beneficiaries is anticipated.
For many retirees, Social Security serves as a significant financial lifeline. Over the past 23 years, Gallup has regularly surveyed retirees to gauge their reliance on this essential social program. Consistently, around 80% to 90% of retirees have acknowledged their Social Security payment as a major or minor income source.
Given its importance to retirees' financial stability, the annual cost-of-living adjustment (COLA) is met with great anticipation. With four consecutive years of above-average COLAs, the program's over 68 million beneficiaries are set to receive larger payments in the upcoming year.
What is Social Security's COLA and why is it crucial?
Social Security's COLA is the adjustment tool the Social Security Administration (SSA) utilizes to modify benefits due to inflation in most years. If the price of a broad selection of goods and services that seniors frequently purchase increases by 3%, for instance, Social Security benefits should also increase by 3% to preserve purchasing power. The COLA determines these price fluctuations and adjusts benefits accordingly.
Originally, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was instituted in 1975 to calculate COLAs annually. This inflationary index measures price changes among more than 200 different spending categories. By assigning specific weightings to these categories, the CPI-W is able to produce a single figure for monthly comparisons, indicating whether prices are escalating (inflation) or decreasing (deflation).
Although the CPI-W is released monthly, only readings from the third quarter (July through September) are considered for COLA calculations. If the average third-quarter CPI-W reading for the current year surpasses the corresponding period of the previous year, inflation has occurred, and benefits will consequently rise. The COLA is proportionate to the percentage increase in the average third-quarter CPI-W from one year to the next, rounded to the nearest tenth of a percent.
2025 Social Security COLA: A 2.5% increase
For 2025, Social Security beneficiaries can anticipate a 2.5% COLA. Although this represents the smallest COLA since 2021, it is still the fourth straight year of above-average increases – 2.5% in 2025 versus approximately 2.3%, on average, over the previous 15 years.
The impact of a 2.5% COLA on the typical Social Security recipient
While a percentage increase might seem straightforward, the actual financial impact of a 2.5% COLA for the average Social Security recipient is more nuanced. To gain a clearer understanding, let's delve into the expected changes in the average monthly Social Security check in 2025.
It's worth noting that the SSA has not yet announced the projected average benefit for its 68 million beneficiaries. To calculate the possible impact, I will examine historical data and make certain assumptions. It's important to note that the average Social Security payment varies throughout the year due to new beneficiaries joining the program, consequently raising the average payout.
Using data from Social Security's "Monthly Statistical Snapshot," the average Social Security check grew from $1,767.03 in December 2023 (the month during which the SSA's Snapshot recognizes annual COLAs in its data releases) to $1,788.12 in November 2024. This equates to an $11.09 increase in payouts over 11 months, or $0.92 per month on average.
If this growth rate of $0.92 per month remains consistent, the average payout for 68.4 million beneficiaries will reach $1,790.04 before the 2025 COLA is applied. Including the announced 2.5% COLA, the average monthly Social Security check will increase to $1,834.79 to usher in the new year, signifying an estimated increase of $44.75 per month. On an annual basis, the average beneficiary can anticipate receiving a little over $22,000 from America's leading retirement program in 2025.
Predicted 2025 payouts for various categories of Social Security recipients
It is worth mentioning that there is a wide range in average monthly payouts among Social Security's primary beneficiary categories: retired workers, those with disabilities, and survivors of deceased workers. Let's also briefly explore how the 2025 COLA will impact the typical monthly check for these three categories of beneficiaries.
As the original purpose of Social Security, providing financial assistance to those unable to work, retired workers constitute 75.6% of all beneficiaries and received 81.4% of the benefits distributed in November.
The SSA's 2025 Fact Sheet estimates that retired-worker benefits will grow by $49 per month to $1,976 in 2025. This translates to a projected annual payout of $23,712 for the typical retired worker.
The approximately 7.24 million workers with disabilities currently receiving benefits will also see their monthly check increase by 2.5% in the new year. The SSA's Fact Sheet is forecasting a $38-per-month rise from $1,542 to $1,580 in 2025.
To wrap things up, around 5.8 million workers' surviving beneficiaries are in store for a 2.5% Cost of Living Adjustment (COLA) next year. Oddly enough, this category was left out by the SSA in their Fact Sheet. Using my own calculations, this estimated boost in monthly payments translates to roughly $38. To simplify, the typical survivor beneficiary's Social Security check is projected to leap from $1,513 to around $1,551.
Given the importance of the COLA for maintaining buying power in retirement, many retirees closely monitor Social Security's annual adjustments. With a 2.5% COLA increase in 2025, retirement funds will receive a much-needed boost, particularly for those heavily reliant on Social Security for their financial needs.
As retirement income sources like pensions and personal savings may not keep pace with inflation, a stable and consistent COLA like the one projected for 2025 plays a significant role in ensuring retirees can maintain their living standards throughout retirement.