There was good news and bad news when the Social Security Administration announced its latest cost of-living adjustment in October of 2024. Contact our Wausau WI retirement team today to learn more.
A CNBC article, Social Security Administration announces 2.5% cost-of-living adjustment for 2025, lowest increase since 2021, has some timely details.
Good news and bad news
The good news is that nearly 73 million Americans will see their monthly Social Security payment increase by 2.5% in 2025. On average, according to the article, most people see an increase of about $50 a month.
The bad news is that it’s the smallest COLA increase since 2021’s 1.3%. Thanks in part to pandemics parked inflation, in 2022, the COLA was 5.9% and in 2023 it was 8.7%. The 2024 COLA was 3.2%.
Each year, the COLA is calculated based on a portion of the Consumer Price Index called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The percentage increase in the CPIW from the third quarter of the previous year to the third quarter of the current year determines the COLA.
How much more?
If you’re currently receiving Social Security, you can get a solid approximation of how much your payment will change by multiplying your current monthly amount by the percentage increase, which again, is 2.5%.
If you want to be more precise about how much larger your monthly payment will be in 2025, it’s helpful to consider Medicare Part B premiums, which are commonly deducted right from your Social Security payment. The standard Medicare Part B premium has increased to $185 dollars, a modest increase from 2024’s $174.70.
The longer, the better
Additionally, the larger your Social Security check, the bigger the increase you’ll see in your monthly payment. And, because benefits increase by 77% if you wait to file from age 62 to 70, the COLA increase is only further evidence that waiting as long as possible, up to age 70, to file for Social Security can have very real and very lasting advantages.
If you can’t wait until you’re 70, you should at least wait until you reach your full retirement age.
Currently, the full retirement age is 66 and two months for people born in 1955 and gradually rises to 67 for everyone born in 1960 or later. The age at which you initially file for Social Security is the single biggest factor that determines the amount of your monthly payment.
Impact on higher earners
For the first time this year, the Social Security Administration provided a one-page COLA notice that detailed benefit amounts, including any deductions.
COLA statements are also available online. However, recipients must have had a My Social Security account before November 20th to see their notices. You can create an account by visiting the Social Security Administration’s website.
Your financial services professional would also be able to help you set up an account.
Think bigger than Social Security
Heading into retirement with Social Security as your only source of income, is going to present you with challenges when it comes to maintaining your preferred lifestyle.
As you consider your retirement strategy, view Social Security as part of your income puzzle, rather than as the entire puzzle. It’s important to have other income sources like a 401(k), IRAs, and investments.
And don’t worry, you don’t have to design that mix yourself, your financial services professional will be able to guide you.