2025 Social Security Cost-of-Living Adjustment

President Franklin Delanor Rosevelt signed the Social Security Act on August 14, 1935, with regular monthly benefits starting in January of 1940.[1] Since then, the Social Security system has formed the foundation of the retirement system for most Americans. However, Social Security covers much more than just retirement income, as it provides benefits for surviving spouses, minor children, disabled individuals, and others. Currently, more than 72.5 million Americans receive Social Security and/or Supplemental Security Income (“SSI”) benefits. Starting in 1975, Social Security benefits began adjusting annually to offset inflation.[2] These annual adjustments are often referred to as Cost of Living Allowances or “COLAs”. Every October, the Social Security Administration (“SSA”) determines the COLA for the following year based on inflation data from the U.S. Bureau of Labor Statistics. This year the SSA determined that Social Security benefits for 2025 will receive a COLA of 2.5%.[3]

COLA Impacts

The primary function of the COLAs is to increase the benefits payable to Social Security beneficiaries. The Senior Citizens League (“TSCL”) estimates that the 2025 COLA of 2.5% will increase the average retired worker’s Social Security check from $1,920 to $1,968 for an increase of $48.[4] Similarly, the SSA estimates an increase from $1,927 to $1,976 for an increase of $49.[5] The 2025 adjustment is the lowest since 2020, when the COLA was 1.3%, and follows closely on the 5.9% increase in 2022 and 8.7% increase in 2023 (the largest increase since 1981).[6]

The COLA determined by the Social SSA after reviewing the percentage increase in the consumer price index for urban wage earners and clerical workers (“CPI-W”), which is determined by the U.S. Bureau of Labor Statistic, for the third quarter from one year to the next. There is a growing concern amongst retired individuals that the COLAs are not keeping up with actual inflation, with some experts suggesting that a different index should be used and/or that a minimum COLA be instituted. According to a recent TSCL survey of more than 3,000 older Americans, 70% said they worry that persistently high inflation prices will cause them to raise their spending and risk depleting their retirement savings and other assets.[7] Given that TSCL research shows that 67% of seniors depend on Social Security for more than half their income and that 62% worry their retirement income won’t even cover essentials like groceries and medical bills, these concerns are shared by a large number of individuals.[8]

Beyond increasing Social Security benefits, the COLA also increases the income limits for several purposes, including SSI. The SSI Federal Benefits Rate for individuals increased from $943 per month to $967 per month and for couples from $1,415 per month to $1,450 per month. Otherwise, eligible individuals have their SSI benefit reduced dollar for dollar for every dollar of countable income they have in excess of the SSI Federal Benefits Rate.[9]

Many other governmental benefits are also tied to these numbers. Importantly, the income limits for many Medicaid benefits are directly tied to the above SSI Federal Benefits Rate. For example, the income limits for long term care (or nursing home) coverage and the Home and Community Based Services Waiver Program for Mississippi Medicaid purposes are equal to 300% of the SSI Federal Benefits Rate for individuals ($2,901 per month). Similarly, a veteran’s maximum annual pension rate, the maximum veteran’s pension benefits an individual can receive in a given year, increases by the COLA.[10] For a summary of veteran’s pension benefits please see my article from earlier this year as well as my subsequent article on the increased benefits provided by Aid and Attendance and Housebound ratings.[11]

The COLA also adjusts the earnings limits for retirement benefits and Social Security disability eligibility purposes. See the following chart summarizing the changes from 2023:

The retirement earning income limits are the dollar figure that a retired individual can earn before any of their Social Security retirement benefits will be reduced.[12] Generally, once an individual who has not reached full retirement age (67 for most people) earns more than the applicable retirement earning income limit, one dollar of their Social Security retirement benefit will be withheld for every two dollars that their income exceeds the limit.[13] For the year an individual reaches full retirement age, one dollar of benefits is reduced for every three dollars in earnings above the limits, however, this only applies to earnings for months prior to attaining full retirement age.[14] Once an individual attains full retirement age, there is no income limit.[15]

To qualify for Social Security Disability Insurance (“SSDI”), an individual must be unable to perform any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of at least 12 months.[16] The specifics of determining whether an individual meets the requirements for SSDI are beyond the scope of this article. The dollar figures in the table above depict the level of income that constitutes substantial gainful activity for a disabled individual depending on whether they are blind, not blind, or attempting to return to the work force (trial work period). If an individual earns more than the limits above, they will lose SSDI eligibility.[17]

Needless to say, the COLAs have a much larger impact than merely increasing Social Security benefits. The annual COLA announcements represent a change to so many facets of governmental benefits such as Social Security, SSI, veteran’s benefits, and more. Nonetheless, the primary function of the COLAs is to combat inflation for Social Security benefits. Unfortunately, the 2025 COLA is much smaller than the recent ones from 2022 and 2023, such that many retired individuals that depend on Social Security benefits for much of their necessities are concerned that the COLAs are not sufficiently keeping up with inflation. While the COLAs are determined by the SSA based on the percentage increase in the CPI-W, some are calling for changes to better protect retired individuals.

[1] See the FAQs page of the Social Security website at https://www.ssa.gov/history/hfaq.html#:~:text=Q1%3A%20When%20did%20Social%20Security,benefits%20started%20in%20January%201940.

[2] See https://www.ssa.gov/history/briefhistory3.html#colas.

[3] See https://www.ssa.gov/cola/.

[4] See https://seniorsleague.org/2025-cola/.

[5] See the 2025 COLA link at https://www.ssa.gov/cola/.

[6] See https://www.ssa.gov/cola/.

[7] See https://seniorsleague.org/2025-cola/.

[8] Id.

[9] Note though that the calculation for countable income for these purposes is subject to several specific rules.

[10] 38 C.F.R. Section 3.274(a).

[11] Devin Mills, “VA Pension Benefits Summary” (April 9, 2024), https://esapllc.com/va-pension-benefits-summary-2024/ and “VA Pensions – Aid and Attendance and Housebound Ratings” (June 10, 2024), https://esapllc.com/va-pensions-aid-and-attendance-and-housebound-ratings-2024/.

[12] Note that specific rules apply to determining income for these purposes as well.

[13] 20 C.F.R. Section 404.415 & SSA POMS RS 02501.021(B)(4).

[14] SSA POMS RS 02501.021(B)(4).

[15] Id.

[16] 42 U.S.C. Sections 423(a)(1)(E), 423(d)(1)(A), & 1382c(a)(3)(A).

[17] Again, there are specific rules that apply when attempting to calculate earnings for SSDI purposes and for the consequences related to losing SSDI eligibility for a given period.

Devin Mills, J.D., LL.M., CPA

View Full Profile.