One of the most important features of Social Security is the annual cost-of-living (COLA) increase, which is designed to help retirees’ income keep up with inflation. But after several years of above-average adjustments, seniors will see just a modest increase when the first payment lands in their bank account in January.
In October, Social Security announced that beneficiaries will receive a 2.5% COLA adjustment in 2025. The increase will boost the average monthly benefit to $1,976, up from $1,927 in 2024, or $3,089 for a couple who are both receiving benefits, up from $3,014 in 2024.
The increase is the smallest since 2020, when the COLA was just 1.6%. In 2023, benefits climbed by 8.7%, reflecting a sharp rise in prices the previous year. The 2025 adjustment, which is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), reflects a decline in the inflation rate in the third quarter of 2024 from the same period a year earlier.
Advocates for seniors contend that the annual increase doesn’t reflect retirees’ actual expenses, which are disproportionately affected by the rising cost of housing and health care. In 2025, Medicare Part B premiums, which are typically deducted from Social Security payments, will be $185 a month, up $10.30 from $174.70 in 2024.
Other Social Security changes
Although retirees’ annual cost-of-living adjustment gets the most attention, other inflation-related revisions affect high-income workers, along with Social Security beneficiaries who continue to work.
Most employees pay 6.2% in Social Security payroll taxes, while employers pay an additional 6.2%, for a total payroll tax of 12.4%. However, payroll tax is not withheld on income that exceeds a certain threshold, which is adjusted annually to account for inflation. In 2025, workers will pay Social Security taxes on up to $176,100, up 4.45% from $168,600 in 2024.
Meanwhile, retirees who continue to work after filing for benefits will be able to earn more in 2025 without reducing their monthly payments. If you file for Social Security before you reach full retirement age (66 for beneficiaries born between 1943 and 1954, gradually increasing to 67 for beneficiaries born after that) and earn income from a job, Social Security applies the “earnings test” to your income and will withhold a portion of your benefits once your earnings exceed a certain threshold.
In 2025, the amount workers who haven’t reached full retirement age can earn before Social Security withholds a portion of their benefits will increase by nearly 5%.
How to get help with Social Security
Figuring out when to file for Social Security and how to get the most from your benefits is complicated, and many seniors look to the Social Security Administration for assistance. Unfortunately, retirees seeking help often confront long lines at branch offices or endure extended wait times on the phone.
During an October webinar sponsored by the Urban Institute, Social Security Commissioner Martin O’Malley attributed the delays to staffing shortages and a backlog of disability claims, which account for about half of the agency’s administrative budget. O’Malley says Social Security has made progress in processing those claims and has reduced the average wait time for individuals who call the agency’s customer service number (800-772-1213) from about 42 minutes to 11 minutes.
If you want to apply for Social Security or get more information about your retirement benefits, you may avoid waiting on the phone by creating an account at www.ssa.gov/myaccount. Once you’ve done that, you can review your most recent Social Security statement, receive an estimate of your monthly benefits and apply for benefits if you’re eligible. Social Security also offers tools you can use to estimate benefits based on different scenarios.
If you set up an account before September 18, 2021, you’ll need to go online and transition it to Login.gov, a sign-in service administered by the federal government. Social Security officials said the change will simplify the process of signing in securely to accounts. You don’t need to create a new Social Security account to make the change.
Even if you’re years from retirement, you should create a Social Security account or update the one you already have. Once you’ve logged in, you can review your earnings record for potential errors that could reduce the benefits you receive. Errors can occur because an employer reported your earnings using the wrong Social Security number, for example, or because you changed your name and didn’t report it to Social Security.
You can also use your online account to determine whether you’ve earned enough credits to qualify for Social Security benefits (most people need 40 credits to be eligible). You can earn up to four credits a year, and the amount you need to earn to receive a credit is adjusted every year. In 2025, you must have wages and/or self-employment income of $1,810 to earn one credit, and you must earn $7,240 to get four full credits.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
