On October 10, 2024, the Social Security Administration (SSA) made one of the most important announcements for retirees in the United States. All retirement, SSDI, and SSI payments will increase by about 2.5% in 2025. Thanks to this Cost-of-Living Adjustment all benefits will be 2.5% higher next year in the U.S.
However, not all retirees receive the same payment amount in 2024. Therefore, the amount of extra dollars they will receive will not be the same. For example, if your payment is worth $100 dollars, you will get $2.5 extra per month. While retirees who receive $1,000 will get $25 extra per month, those with a lower check will get less money after COLA and vice-versa.
Why will the 2025 COLA give more money to some retirees on Social Security?
The answer is simple, it is because they have a larger payment amount. If your Social Security payment is worth $2,000, you will receive $50 extra in your January payment. Another possibility is to receive a retirement benefit payment worth $3,000. Retirees whose check is worth $3,000 will get $75 extra after the COLA increase takes effect.
Hence, if your check is worth $4,000, you will receive $100 extra per month if compared to your 2024 payments. The rule is, the higher your Social Security check, the more extra money you will get in 2025.
Largest benefit payments after Social Security COLA increase
For your information, Social Security payments will be up to $5,108 in 2025, up from $4,873. This will be your check amount if you filed at 70, earned the taxable maximum and worked for 35 years in jobs covered by SSA.
If you meet most requirements but file at Full Retirement Age (FRA), you will receive up to $4,018 in 2025, up from $3,822. Remember that this is the moment when you can receive 100% of what you are entitled to.
Thus, there will be no reductions or rewards at FRA. Filing at 62 means getting a lot less. In general, there is a 30% reduction. The largest benefit payment at 62 will be $2,831 in 2025, up from $2,710.
How often does the Social Security Administration adjust payments for inflation?
The Social Security Administration (SSA) adjusts payments annually for inflation through cost-of-living adjustments (COLAs). Here are the key points about how Social Security recalculates payments:
- COLAs are calculated each year using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If the CPI-W increases from the previous year’s third quarter to the current year’s third quarter, Social Security benefits increase by that percentage, rounded to the nearest tenth of a percent.
- The COLA takes effect with December benefits, paid in January of the following year. For example, the 2.5% COLA for 2025 will apply to December 2024 benefits, paid in January 2025.
- COLAs have been implemented every year since 1975, when Congress enacted automatic annual cost-of-living allowances tied to the CPI. This ensures Social Security benefits maintain their value and keep pace with inflation over time.
- Beyond COLAs, an individual’s Social Security payment can change annually if they continue working after starting benefits. If their earnings for a year exceed one of the 35 years used to calculate their benefit, the higher earnings year replaces a lower one, increasing their benefit.
- If benefits are started before full retirement age and the individual works, benefits may be temporarily reduced if earnings exceed certain limits. However, at full retirement age, benefits are recalculated to remove the reduction.