The annual cost of living adjustment, or COLA, is one of the most important parts of Social Security. The COLA is meant to help American beneficiaries’ monthly pay cheques keep up with the rising costs of things like food, housing, health care, and transportation.
Most of the time, the Bureau of Labour Statistics announces the cost of living adjustment in the second week of October. The SSA then uses this information to raise the annual benefits for more than 72 million people across the country.
Retirees who will receive the first payment, including the 2025 COLA increase
Costs will go through the roof because of high inflation between 2021 and 2023, so many retirees are looking forward to getting bigger checks. Many families are still having a hard time keeping up with the prices.
According to the Social Security Administration, retirees will only get a 2.5% COLA increase in the new year, which is different from what most Americans thought. When people retire in January, this much more will be added to their checks.
Before getting into the details of the 2025 COLA, it is important to know how the Social Security Administration figures out the annual adjustment.
The Consumer Price Index (CPI) changes show how the COLA changes. The CPI figures out inflation by looking at the prices that consumers pay for things like housing, food, transportation, and medical care.
The Social Security Administration uses a subset of the CPI called the CPI-W to keep track of a basket of goods that show how wage earners and secretaries in cities spend their money. CPI-W changes, which show the average year-over-year rise for the third quarter. This is used to figure out the COLA for the next year.
Others say that the process is too limited since it only looks at three quarters of the year. Some people say that the government should use different data to figure out the cost of living adjustment (COLA).
The CPI-E, a part of the CPI, even tracks the prices of a basket of goods that are more representative of what older people spend their money on. That being said, this is the system they use for now.
These are the projected increases in the regular retirement check
The amount of your Social Security increase will depend on how much money you make now since the COLA is a percentage. When retirees get their Social Security check in January, they will also get an update in the mail that tells them how much they will get.
It is also important to note that the average Social Security retirement benefit in October was $1,924. With the 2.5% COLA, for example, the average retirement pay cheque will go up by $48. This means that beneficiaries will earn about $1,970 a month.
Still, starting in January, a lot of retirees will not get their full COLA in their monthly dividend. The Social Security Administration may hold back some of your Social Security check for certain reasons.
The most important thing that will change is the Medicare Part B premiums. If a person is on Medicare and getting Social Security, their premiums will be taken out automatically.
Part B premiums will go up from $10.30 a month to $185 a month for people with adjusted gross incomes (AGIs) under $106,000 or couples with AGIs under $212,000. People who make more money may have to pay more for their premiums. This brings the average rise of $48 closer to $38.
Luckily, if your Social Security check is small, the rise in Medicare Part B premiums will not mean less money for you. If the rise in your premium is more than your COLA, the government will pay the difference.
It is very important to know how the government figures out your COLA and how it affects your Social Security check. Make sure you read your statements carefully to understand everything, such as how much the government takes out of your cheque and how much you get from Social Security.
