“Our research shows that 67 percent of seniors depend on Social Security for more than half their income and that 62 percent worry their retirement income won’t even cover essentials like groceries and medical bills,” says Shannon Benton, Executive Director of The Senior Citizens League. 

Understanding the COLA and its impact on beneficiaries

Last year, the COLA was 3.2%, thanks to the higher inflation rates that prevailed in the waning months of the pandemic. It’s also a huge change from 2023, which saw a COLA of 8.7%. 

The COLA is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), determined by the Bureau of Labor Statistics. It was enacted by Congress in 1975 as a way to adjust benefits for inflation. If there’s no increase in CPI-W, there’s no COLA, either.

The COLA applies to all Social Security payments, including retirement, Social Security Disability Insurance, Supplemental Security Income, and survivor and family benefits.

Retired Social Security beneficiaries can expect to receive about $49 more per month compared to last year. In November of 2024, the average monthly benefit was $1,927, but with the rate increase the average will become about $1,976 this year to keep pace with inflation.

For retirees over 70, the maximum amount you can receive has gone up to $4,995, an increase of $122 compared to last year, highlighting the value of waiting to take Social Security if you can. Contrast that with those who started taking benefits at age 62, whose average monthly payment will go from $2,710 to $2,778, or a $68 difference—just over half of what those over 70 well be adding to their checks each month.

“I cannot stress enough how important it is to discuss the timing of Social Security withdrawals with your advisor or planner,” encourages Christine Coley, CFP,  a wealth advisor at SteelPeak Wealth. “One of the biggest mistakes I come across is retirees that start drawing too early and jeopardize their future benefits. These situations are very specific to each retiree and should be discussed in detail with your planner.”

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Does the 2025 COLA really help you beat inflation?

Many money experts note that this year’s COLA increase barely keeps up with inflation, and other concerns for 2025, such as changes to tariffs and increases in home insurance, have consumers feeling the weight of the current American financial climate. 

“Nominally, [the COLA] is a little below the total inflation rate,” observes Timothy Fogarty, PhD, CPA, JD, Professor at the Weatherhead School of Management at Case Western Reserve University. “In reality, it depends on what people are spending their money on, since rates of price changes vary on specific items. A full blown tariff war will make people really feel that they have not kept pace. However, that would mean a larger COLA in future years.”

“While it’s always nice to see a Social Security COLA, it doesn’t quite keep up with certain areas of inflation like healthcare and housing,” says Coley. “Long-term averages for healthcare inflation in the US are often a little over 5%. As a financial planner I often use 6% as a healthcare inflation rate.”

Housing costs are also continually rising—not just the price of new homes or rentals, but also the cost of home insurance has been rising faster than inflation, cautions Coley. So even if retirees don’t plan to move, they are still facing increasing costs just to stay in their own home.

Benton stresses the importance of changing the system entirely: “This year represents another lost opportunity to grant seniors the financial relief they deserve by changing the COLA calculation from the CPI-W to the CPI-E (The Consumer Price Index for Americans 62 years of age and older), which would better reflect seniors’ changing expenses.”

Additional Social Security changes for 2025

The COLA isn’t the only change made to Social Security pensions for 2025: The maximum taxable earnings amount has increased from $168,600 in 2024 to $176,100 in 2025. For those who have reached full retirement age, earnings test exempt amounts went from $59,520 per year ($4,960/month) in 2024 to $62,160 per year ($5,180/month) in 2025.

For those under full retirement age (between 62 and 66 years old), these numbers are much smaller: From $22,320 a year ($1,860/month) in 2024 to $23,400 per year ($1,950/month) for 2025. 

The takeaway

Many retirees and other beneficiaries are disappointed in the lower COLA increase compared to previous years. While the Fed’s lowered rates signal that inflation has stalled, grocery and housing costs remain high. It’s important to understand how your benefits will be affected so you can plan accordingly.