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Social Security COLA in 2025: Beneficiaries May See a Modest 2.5% Increase—What to Expect

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Social Security beneficiaries have enjoyed significant cost-of-living adjustments (COLA) in recent years, thanks to record-high inflation rates. In 2023, the COLA saw an unprecedented 8.7% boost, marking the highest increase in over 40 years. However, with inflation showing signs of cooling, experts predict that 2025 may bring a more modest increase to Social Security benefits. According to analyst Mary Johnson, the 2025 COLA could settle at around 2.5%. While this is more in line with historical averages, it will likely be a noticeable drop from the recent trend of larger adjustments. 

The History Behind Recent COLA Increases 

Over the last few years, beneficiaries have seen significant increases in Social Security payments due to inflation. Here’s a breakdown of the annual COLA in the last 5 years: 

  • 2024: 3.2% 
  • 2023: 8.7% (highest in 40 years) 
  • 2022: 5.9% 
  • 2021: 1.3% 
  • 2020: 1.6% 

These adjustments helped retirees cope with skyrocketing costs, driven by inflation rates that peaked at over 9% in mid-2022. In 2024, the increase was a more moderate 3.2%. For 2025, Johnson estimates a 2.5% COLA, based on the current inflation trends. Although less generous, this estimate is in line with historical averages. 

How the Social Security COLA Is Determined 

Each year, the Social Security Administration (SSA) calculates the COLA by analyzing inflation data from the third quarter, using a specific consumer price index known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The annual adjustment is designed to ensure that benefits keep pace with rising living costs, but it’s not foolproof. Factors such as Medicare premiums and taxes on Social Security benefits often offset these increases, reducing the actual amount retirees see in their checks. 

How Taxes and Medicare Premiums Impact Your Benefits 

Two key factors can erode the value of Social Security COLA increases: taxes on benefits and rising Medicare premiums. For many retirees, a portion of their Social Security income is subject to federal taxes. Currently, up to 85% of benefits may be taxed, depending on income. Additionally, Medicare Part B premiums, which are often deducted directly from Social Security checks, have historically increased at a faster rate than COLA. 

Between 2005 and 2024, Part B premiums grew by 109.9%, while Social Security adjustments only totaled 52.5%. This widening gap means that retirees must prepare for healthcare premiums to take up a larger share of their income in the future. 

What to Expect for 2025 and Beyond 

The projected 2.5% COLA for 2025 is an estimate and subject to change based on inflation data released by the government in the coming months. As of August 2024, inflation has slowed significantly, with a 2.5% rise in the Consumer Price Index (CPI) over the last year. Lower inflation likely means a more modest adjustment for beneficiaries in 2025. 

The official COLA announcement from the SSA will come during October 2024, and at that point, we will know the exact increase that retirees can expect to see in their benefits. Analysts note there is still a small chance that the adjustment could rise or fall slightly based on updated inflation data. 

Preparing for the Future: How Beneficiaries Can Maximize Their Social Security Income 

While COLA increases are an essential part of keeping Social Security benefits in line with inflation, there are steps retirees can take to maximize their income: 

  • Delay Retirement: Postponing your Social Security claim until after your full retirement age can significantly increase your monthly benefits. 
  • Monitor Medicare Costs: Keep track of rising Medicare premiums and explore different plans during open enrollment to reduce costs. 
  • Minimize Tax Liabilities: Consider working with a financial planner to reduce taxable income from other sources, thereby lowering the taxes on your Social Security benefits. 
  • Create a “My Social Security” Account: Use the SSA’s online tools to track your earnings, estimate future benefits, and review any updates to your payments. 
Why You Need More Than Just Social Security for Retirement 

While Social Security plays a crucial role in retirement income, it is far from sufficient to meet the lofty retirement goals that many Americans have today. According to a survey from Northwestern Mutual, the average worker believes they need $1.46 million to retire comfortably, a 53% increase from their target in 2020. Yet, most people are falling short, with the average retirement account balance at just $88,400. This leaves a staggering $1.37 million gap between what workers have saved and what they believe they need. 

This growing gap highlights the urgent need for individuals to save more and explore alternative income streams. With rising living costs, longer life expectancies, and uncertainties surrounding Social Security’s future, relying solely on government benefits may not provide the financial security needed for a comfortable retirement. Diversifying your retirement savings by investing in assets like cryptocurrencies can offer potential growth and help bridge the savings gap. 

Boosting Your Retirement Income: Exploring the Benefits of a Crypto IRA 

As Social Security COLA adjustments fluctuate and inflation impacts the real value of your benefits, retirees are increasingly looking for alternative ways to boost their retirement income. One such option gaining popularity is opening a Crypto IRA. A Crypto IRA allows you to invest in digital currencies like Bitcoin, Ethereum and Solana through a tax-advantaged retirement account, similar to regular IRAs. 

By diversifying your retirement savings with a Crypto IRA, you can potentially capture the growth of the rapidly expanding cryptocurrency market, which could offer higher returns than traditional investments. Moreover, these accounts offer tax advantages, with earnings either growing tax-deferred or, in the case of a Roth Crypto IRA, tax-free, depending on the type of account you choose. This provides a powerful hedge against inflation and rising costs, offering retirees another stream of income in addition to Social Security benefits. 

For those seeking to preserve and grow their purchasing power during retirement, a Crypto IRA can be an innovative way to supplement Social Security and ensure long-term financial security. 

Looking Ahead to 2025 

While the 2025 Social Security COLA may be smaller than recent years, it remains a crucial component of financial planning for retirees. As inflation slows, so too will the need for steep adjustments, bringing COLA increases back in line with historical averages. By understanding how benefits are calculated and taking steps to minimize costs, beneficiaries can ensure they are prepared for whatever the future holds. Stay informed, review your options, and take control of your retirement income. 

With Social Security benefits being impacted by inflation and modest COLA increases, it’s more important than ever to secure additional income streams for your retirement. A Crypto IRA offers a unique opportunity to diversify your savings, potentially benefit from high returns, and enjoy tax advantages that traditional retirement accounts may not provide. 

Don’t wait—take charge of your financial future today. Open a Crypto IRA with BitcoinIRA¹ and start building a stronger, more resilient retirement portfolio. 

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