Social Security Administration (SSA) recently announced that in 2025, millions of Americans receiving Social Security benefits and Supplemental Security Income payments will see a 2.5% increase. Starting in January, the Cost-of-Living Adjustment (COLA) will result in an average monthly benefit increase of around $50, with the federal government estimating the average monthly Social Security benefit for retired workers next year to be $1,976.
Aside from the COLA announcement, SSA outlined a series of changes for retirement plans in the upcoming year. By 2025, the maximum monthly Social Security benefit for workers reaching full retirement age of 67 will rise to $4,108, up from $3,822 in 2024.
A widow with two children can expect an estimated average monthly benefit to increase from $3,669 to $3,761 in January. The estimated average monthly benefit for “old-age” widows or widowers will rise from $1,788 to $1,832.
For those receiving Social Security Disability Insurance benefits, the maximum monthly limit will increase from $1,550 to $1,620. The estimated average monthly benefit for disabled workers will rise from $1,542 to $1,580. Blind workers will see their maximum monthly benefit increase from $2,590 to $2,700.
A disabled worker with a spouse and one or more children can expect an estimated average monthly benefit increase from $2,757 to $2,826.
Individuals waiting to collect Social Security benefits at full retirement age will receive delayed retirement credits, allowing them to claim more money. Workers retiring at 70 can receive a maximum monthly payment of $5,108, up from $4,873 previously.
The Senior Citizens League called the 2025 COLA “disappointing,” stating that it once again missed an opportunity to provide much-needed economic relief for seniors. The League’s executive director, Shannon Benton, recommended implementing an index that reflects seniors’ changing cost of living to alter the calculation of COLA.
Currently, SSA relies on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which tracks price changes of goods and services consumed by about one-third of the U.S. population. Benton suggested using the Consumer Price Index for the Elderly (CPI-E) for COLA calculations, as it closely monitors costs more relevant to the elderly, such as prescription drugs.
Benton stated, “Once again, an opportunity was missed this year to deliver the COLA seniors deserve by switching the COLA calculation from CPI-W to CPI-E, as the CPI-E would better reflect the changing expenses of seniors.”
She added, “Seniors and The Senior Citizens League urge Congress to take immediate action to strengthen COLA to ensure that Americans can retire with dignity, such as establishing a minimum 3% COLA and switching the COLA calculation from CPI-W to CPI-E.”
For many American seniors, the increase in 2025 may seem small compared to their daily expenses. However, this adjustment could have an impact on many beneficiaries, as AARP CEO Jo Ann Jenkins pointed out.
Jenkins stated, “This adjustment means Americans seniors will receive necessary relief to help better afford essentials from food to gasoline. We know many American seniors relying on Social Security may find it challenging to pay their bills. Social Security is the primary source of income for 40% of American seniors.”
For those earning up to $168,600, the Social Security tax rate is 6.2%, with employers contributing an additional 6.2%, and self-employed individuals paying 12.4%. By 2025, the maximum taxable income will rise to $176,100.
To qualify for Social Security benefits, individuals must earn at least 40 credits over their working careers, with a maximum of four credits per year. Next year, the earnings required for one credit will be $1,810, up from $1,730 in 2024.
Beneficiaries who work while receiving benefits will face adjustments. Before reaching full retirement age, individuals can earn up to $23,400 annually in 2025 without losing any benefits, up from $22,320 in 2024. For those already at full retirement age but still working, the maximum earnings without any benefit reduction will rise to $62,160 in 2025, up from $59,250 in 2024.
It’s important to note that any earnings exceeding the limit will result in a reduction of benefits. Individuals reaching full retirement age in 2025 will have their income not affect their benefits regardless of the amount earned.
Social Security and Medicare are actively addressing long-term funding challenges. The Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund collectively form OASDI, ensuring the health of Social Security. It’s estimated that by 2035, OASDI will pay 100% of scheduled benefits.
After 2035, the trust funds’ reserves will be depleted, leading to an automatic 17% benefit reduction. The OASI Trust Fund is expected to pay full benefits until 2033, after which benefits will face a 21% reduction.
Within the next 100 years, the DI Trust Fund is projected to pay out 74% of benefits. As of the 2024 OASDI Trustees Report, Social Security carries a long-term unfunded liability of $63 trillion.
Professional recommendations aim to shore up these programs financially. Trustees propose increasing the payroll tax rate to around 17% or implementing a permanent reduction of approximately 26.5% in benefits for all current and future beneficiaries to address the funding shortfall.
Another proposal suggests raising the full retirement age from 67 to 69. The Congressional Budget Office (CBO) states that this policy change would reduce Social Security expenditures and the program’s actuarial deficit over 75 years. However, the CBO cautions that the OASI and DI Trust Funds, if combined, are projected to be depleted by fiscal year 2034.
These proposed adjustments underline the ongoing efforts to secure the future sustainability of Social Security and Medicare programs.