Even though it only comes up when someone close to us turns 66 or when we start to wonder about the deductions on our paychecks, Social Security is still an important topic when talking about retirement income. People in both Gen Z and Millennials today are hearing that by 2035, benefits may only cover 75% of what they need.
A lot of people want to know how the candidates plan to deal with this problem. Despite these worries, there is good news for people who are already receiving Social Security: the Cost-of-Living Adjustment (COLA) for 2025.
What the 2025 COLA increase means for Social Security beneficiaries
Social Security benefits will go up by 2.5% in 2025 due to the COLA. The change will affect more than 72.5 million Americans, including about 68 million Social Security recipients, who will see an increase in their January payments. Starting December 31, 2024, people who get SSI (Supplemental Security Income) will see the increase a little earlier.
This change is meant to help people who depend on these benefits deal with the effects of inflation on their ability to buy things.
For example, someone who is currently getting $11,321.49 a year would get an extra $967, bringing their total yearly income to about $11,604.53. Couples who get these benefits together will get more. In 2025, the benefits will go up from $16,980.36 this year to $17,404.87.
Who receives Social Security benefits
People often think of Social Security benefits when they think of retirement, but these payments aren’t just for older people.
People with disabilities can also get Social Security if they meet certain requirements for “work credit.” You can get these work credits based on how much money you make each year, and the amount you need to earn a credit can change every year based on the overall wage level.
This year, a worker had to make at least $1,730 in covered wages in order to get one SSI and Medicare credit. A person must have at least $6,920 in covered earnings by the end of the year in order to get all four credits that are possible in a single year.
You can reach this goal by working a regular job or making money on your own. The least amount of money you need to earn these credits goes up as wages go up in general.
How work credits impact eligibility in cases of disability
Think about a young worker who has a serious accident, like a real estate investor who is 32 years old. In order for this person to be eligible for SSI benefits, they would need to have earned at least 20 work credits in the last ten years. If the accident happened when they were 24 to 31, they would have had to work at least half the time from age 21 until they became disabled.
People under 24 don’t have to meet as many requirements; they only need to have earned six credits in the three years before their disability. Also, family members like surviving spouses and children who depend on them may be able to get benefits if they meet the requirements for U.S. citizenship or legal residency.
Why the Social Security COLA increase is happening in 2025
The 2025 increase is due to the COLA adjustment, which is made every year based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures inflation. Since 1983, this has been based on CPI-W increases from the third quarter of the previous year to the third quarter of the current year. The first cost-of-living adjustment was made in 1975.
The goal of COLA is to help people who get Social Security or SSI keep their purchasing power even though prices are going up. The rate of increase can change from year to year, but it always reflects changes in the cost of living that affect people who get the money.
Homes will get notices of the 2025 rate increase by December. As in previous years, the notices will be presented in a clear, personalized way, giving specific information about the new payment dates and amounts.
This change helps beneficiaries deal with the rising costs of things like groceries, medical care, housing, and utilities. For many, especially those who live on fixed incomes, even a small increase in benefits can make a big difference in how much they can spend each month.
Even though the COLA adjustment might not fully cover all rising costs, it does help and keep things stable in an economy that is changing all the time.
Since inflation is still having an effect on prices in almost every area, Social Security’s annual COLA changes are very important for protecting beneficiaries’ financial well-being. Even though it can’t stop the problems the country is having with its economy, this built-in adjustment mechanism gives people peace of mind that these important benefits will keep at least some of their value over time.
There are still a lot of questions about the future of Social Security, especially among younger people who are worried about the system’s long-term viability. However, the COLA increases give people who depend on these benefits a sense of stability.
The program’s dedication to providing meaningful support to its recipients is shown by the fact that these payments are still being changed to account for changes in inflation.
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