Millions of American retirees receive Social Security benefits each month. And without an annual cost-of-living adjustment (COLA), many retirees would undoubtedly fall behind financially from one year to the next.
The purpose of COLAs is to ensure seniors can maintain their purchasing power as inflation drives up the cost of living. And so this time of year, Social Security recipients become increasingly curious about their upcoming COLA for the new year.
Social Security COLAs are calculated based on the third-quarter Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) readings. We already have CPI-W data for July and August, but September readings won’t be available until October 10. And on that day, the Social Security Administration plans to announce a number of important changes to the program – COLA-related and otherwise.
But September’s CPI-W reading isn’t the only missing piece of the puzzle when it comes to determining what the 2025 COLA will mean for you. There’s another key piece of information you’ll need to see what financial impact your upcoming raise will have.
Don’t forget to consider an increase in Medicare costs
Seniors enrolled in both Social Security and Medicare will have their monthly Part B premiums automatically deducted from their benefits. If this applies to you and Medicare Part B costs increase significantly in 2025, it could affect your upcoming COLA, leaving you with less money to spend.
In 2024, the standard monthly premium for Medicare Part B increased from $164.90 to $174.70. Just as we don’t have a September CPI-W value at this time, we also lack an update from Medicare on Part B costs.
But we may get inflation data for September before Medicare releases a standard Part B premium for the new year. That means you may learn on October 10 what percentage your Social Security check will increase by. But you won’t necessarily know how much extra money you’ll get with each month’s check until you learn more about Medicare.
Ways to deal with a smaller increase
Recent estimates suggest Social Security’s COLA will be 2.5% in 2025, but that figure could change if inflation picks up or slows through the end of September.
However, given where we are now this year, that 2.5% estimate may not be that far from reality. And while we don’t know what Medicare has in store for us, it’s safe to assume that Part B will see a modest increase.
If you’re unhappy with a net increase, you can try rethinking some of your current expenses. Maybe you have an emotional attachment to the home you raised your children in. But if heating and maintenance are expensive and your property tax bill keeps rising, moving to a smaller home might be a better solution.
It also doesn’t hurt to try your hand at the gig economy and see if you can increase your income through flexible working – you might find that a few hours of work a week makes a big difference to your finances.
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Social Security’s COLA for 2025: The Big Wild Card Everyone Should Know About was originally published by The Motley Fool.
