Social Security Announces New Increase for 2025, giving recipients a 2.5% boost to help with rising costs. Although this year’s 2.5% COLA increase is smaller than in previous years, it still provides a significant uplift to millions of Americans who are recipients of Social Security, SSI, and other related benefits.
SSA officials base the COLAs on inflation data from the Bureau of Labor Statistics. The 2025 COLA is the smallest since 2021 because inflation has been at the lowest level since 2020.
What Does It Mean?
The Social Security COLA is an inflation measure, and it also affects how much the 68 million people getting Social Security benefits have to spend.
The COLA can have a noticeable, direct effect on employers that depend heavily on business from retirees. Compensation analysts may think about the Social Security COLA, along with other inflation indicators, when analyzing employers’ spending on wages, salaries, and benefits. The new Social Security COLA might be more generous for retirees in some areas than in others.
The Social Security Administration follows a calculation method set forth in federal statutes and bases the COLA on the third-quarter average for one key Bureau of Labor Statistics inflation measure, the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. CPI-W rose just 2.2% during the 12-month period that ended Sept 30.
But a breakdown by region shows that increases in another, similar inflation measure, Consumer Price Index for All Urban Consumers, or CPI-U, ranged from 1.2%, in the Tampa, Florida, area, up to 4.1%, in the Chicago area. That means the new Social Security COLA could seem like a raise in Tampa and a pay cut in Chicago.
Additional Changes In Social Security For 2025
Alongside the COLA increase, other significant adjustments are set to take effect:
- The maximum amount subject to Social Security taxes will rise from $168,600 to $176,100, reflecting increases in average wages across the country.
- The maximum Social Security benefit for those retiring at full retirement age will increase from $3,822 in 2024 to $4,018 in 2025.
- Changes in earnings test exempt amounts will allow those collecting benefits before reaching full retirement age to earn up to $1,950 per month without penalty.
