Social Security Cost-of-Living Increase Falls Short for 2025

Strategic Insights -

As inflation continues to moderate, recipients of the Social Security cost-of-living increase (COLA) will receive a smaller increase than in recent years, with analysts predicting a 2.5% COLA for 2025. This increase is expected to boost the average benefit for a retiree who receives about $1,920 a month by $48 a month starting in January 2025. Despite the expected increase, many seniors, like Sherri Myers, are still struggling to make ends meet, with inflation having "eaten up" their savings.

Key Takeaways:

  • The Social Security Administration is expected to announce a 2.5% COLA for 2025, which is lower than the larger increases in recent years.
  • The COLA will increase the average benefit for a retiree who receives about $1,920 a month by $48 a month starting in January 2025.
  • The AARP estimates that a 2.5% COLA would be insufficient to keep up with prices for many seniors.
  • The Social Security Trust Fund is facing a severe financial shortfall in the coming years, with the program's trust fund expected to be unable to pay full benefits beginning in 2035.
  • The maximum amount of earnings subject to Social Security payroll taxes is expected to increase to $174,900 in 2025.
  • Presidential candidates Vice President Kamala Harris and former President Donald Trump have presented dueling plans on how to strengthen Social Security, with Harris promising to make billionaires and big corporations pay their fair share in taxes and Trump vowing not to cut the social program or make changes to the retirement age.
  • Lawmakers have proposed a variety of solutions to deal with the funding shortfall, including cutting Social Security costs by raising the retirement age and reducing the annual COLA.

Statistics:

  • The maximum amount of earnings subject to Social Security payroll taxes was $168,600 for 2024.
  • The maximum amount of earnings subject to Social Security payroll taxes is expected to increase to $174,900 in 2025.
  • The Social Security Trust Fund is expected to be unable to pay full benefits beginning in 2035.
  • Only 83% of scheduled benefits will be paid if the trust fund is depleted.
  • In 2024, recipients received a 11.2% COLA.
  • In 2023, there was a historically large 8.7% COLA, brought on by record inflation.

Sources:

  • "Social Security cost-of-living increase likely to be 2.5% in 2025," AARP, [unavailable]
  • "AP Explainer: Why Social Security's future is uncertain," Associated Press, [unavailable]
  • "Kamala Harris and Donald Trump present dueling plans to strengthen Social Security," CNN, [unavailable]
  • "Social Security Works Endorses Kamala Harris for President," Social Security Works, [unavailable]
  • "Trump vows not to cut Social Security or raise retirement age," Fox News, [unavailable]
  • "Associated Press. (2024). Social Security cost-of-living increase falls short for 2025," Washington AP [unavailable]