Upcoming Social Security COLA Increase and Key Changes for 2025
As the year 2025 approaches, Social Security beneficiaries can expect several significant changes, including a cost-of-living adjustment (COLA) to help keep pace with inflation. The projected COLA for 2025 is estimated to be around 2.5%, which is lower than the 3.2% increase seen in 2024.
2025 COLA Increase
The COLA is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), specifically the third-quarter average from the prior year. The final COLA percentage will be determined by comparing the September 2024 CPI-W data to the third-quarter average from 2023. This adjustment is expected to be formally announced by the Social Security Administration on October 10, 2024, and will take effect starting January 1, 2025.
For beneficiaries, this 2.5% increase translates into an average monthly bump of $48. For example, if a retirees current monthly benefit is $1,800, a 2.5% increase would raise their payment to $1,845. This adjustment helps ensure that Social Security benefits keep up with rising living expenses.
Other Key Changes in 2025
In addition to the COLA increase, there are other significant changes coming to Social Security in 2025. One key change involves the earnings required to qualify for Social Security credits. In 2025, workers will need to earn more to qualify for these credits, as the amount required to earn one credit will increase from $1,730 in 2024. Additionally, the wage cap for Social Security taxes will rise, affecting those who earn above the threshold of $168,600 in 2024.
The Social Security tax limit, which is indexed to inflation, will also increase in 2025. This means that individuals earning above the new threshold will face a higher Social Security tax bill. The exact amount for the wage cap in 2025 has not been announced yet but is expected to be higher than the 2024 limit of $168,600.
Impact on Beneficiaries
For Supplemental Security Income (SSI) recipients, the first payment reflecting the COLA increase will be issued on December 31, 2024, due to the federal holiday on January 1, 2025. Beneficiaries can expect personalized notices about their 2025 benefit amounts through their 'my Social Security' accounts by December 2024.
The COLA increase and other changes are designed to help beneficiaries manage the rising cost of living. However, it is important for retirees and current workers to stay informed about these adjustments to plan their finances effectively and maximize their benefits.