Social Security COLA for 2025 will be smaller than previous years

Social Security benefits and Supplemental Security Income (SSI) payments will rise by 2.5% in 2025, the lowest such increase since 2021. This reflects cooling levels of inflation after a period of historic increases, which pushed the cost-of-living adjustment (COLA) to its own heights during and after the COVID-19 pandemic.

The benefits, which apply to more than 72 million Americans, will translate into a roughly $50 increase on a monthly basis, according to the Social Security Administration (SSA).

“Social Security benefits and SSI payments will increase in 2025, helping tens of millions of people keep up with expenses even as inflation has started to cool,” Social Security Commission Martin O’Malley said in a statement.

Additionally, the estimated average survivor benefit will rise from $1,788 to $1,832 per month, while Social Security Disability Insurance (SSDI) payments will increase from $1,542 to $1,580.

According to AARP, while the reduction is lower when compared to years past, it will still be welcomed by program beneficiaries.

“Inflation is clearly top of mind, not just for retirees, but for Americans generally, and the annual COLA provided by Social Security is a critical feature of the system,” Rob Williams, managing director of financial planning at Charles Schwab, told AARP.

Despite positive economic news that includes moderating inflation and resilient labor market, this may not translate into improved feelings about the cost of living, Williams added.

The COLA increase in 2024 was 3.2%. In 2023, it was unusually high at 8.7%, while the 5.9% increase in 2022 was an early signal of the high levels of inflation in the economy.

Earlier this year, the SSA updated and expanded the SSI benefit program to expand the definition of a “public assistance household” to those receiving Supplemental Nutrition Assistance Program (SNAP) payments and to households “where not all members receive public assistance.”

But solvency remains a key, unaddressed issue for the Social Security Trust Fund. As of May 2024, the Social Security Board of Trustees revised the projected life for full benefit payments from the fund to last an additional year before being exhausted in 2035.

More rigorous reform is needed to better ensure the longevity of the program, something that Congress has been unwilling to address due to the political consequences of such a move. Some lawmakers have attempted to introduce bills to address the program, but consensus has been hard to come by in today’s highly polarized political climate.