Social Security remains a significant topic when discussing retirement income, even though it often only comes up when someone close to us reaches the eligibility age or when we start to wonder about the deductions on our paychecks. Today, both Millennials and Gen Z are hearing that by 2035, only 75% of benefits may be covered.
Many are interested in knowing how candidates plan to address this issue. Alongside these concerns, however, there’s positive news for current beneficiaries: the Cost-of-Living Adjustment (COLA) for Social Security in 2025.
What the 2025 COLA increase means for Social Security beneficiaries
The COLA for Social Security benefits is set to increase by 2.5% in 2025. This adjustment will impact over 72.5 million Americans, including approximately 68 million Social Security beneficiaries, who will notice the increase reflected in their January payments. For those receiving SSI (Supplemental Security Income), the increase will appear slightly earlier, beginning December 31, 2024.
This adjustment is designed to help offset the impact of inflation on the purchasing power of those dependent on these benefits. In practical terms, someone currently receiving $11,321.49 per year would see an increase of about $967, bringing their total to approximately $11,604.53 annually. Couples who jointly receive these benefits will see a larger boost, with benefits rising from $16,980.36 this year to $17,404.87 in 2025.
Who receives Social Security benefits
Although Social Security benefits are often associated with retirement, it’s not just older individuals who receive these payments. People with disabilities are also eligible for Social Security, provided they meet specific “work credit” requirements. These work credits are earned based on annual income, and the amount required to earn a credit can change each year in line with overall wage levels.
This year, a worker needed to earn at least $1,730 in covered earnings to gain one SSI and Medicare credit. To earn the maximum of four credits in a single year, a person must accumulate at least $6,920 in covered earnings by year’s end. This total can be achieved through traditional employment or self-employment income. As wage levels increase in general, so does the minimum amount needed to earn these credits.
How work credits impact eligibility in cases of disability
Consider a young worker, such as a 32-year-old real estate investor, who experiences a serious accident. Based on the work credit requirements, this person would need to have accumulated at least 20 credits over the past ten years to qualify for SSI benefits. If the accident had occurred between the ages of 24 and 31, they would have needed to work at least half of the time between age 21 and the onset of the disability.
For individuals under 24, the requirement is less stringent: they only need six credits earned within the three years leading up to the disability. Additionally, certain family members, such as surviving spouses and dependent children, may also qualify for benefits if they meet citizenship or legal residency requirements in the United States.
Why the Social Security COLA increase is happening in 2025
The 2025 increase is a result of the COLA adjustment, which is calculated annually based on inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This practice began in 1975 with the first cost-of-living adjustment and has been based on CPI-W increases from the third quarter of the previous year to the third quarter of the current year since 1983.
The goal of COLA is to help Social Security and SSI beneficiaries maintain their purchasing power despite inflation. While the rate of increase can vary each year, it reflects changes in the cost of living that affect beneficiaries. Notifications of the 2025 increase will arrive in homes by December and, as in past years, will be presented in a clear, personalized format, offering specific details about the new payment dates and amounts.
This adjustment helps beneficiaries manage the rising costs of essential expenses, from housing and utilities to medical care and groceries. For many, especially those living on fixed incomes, even a modest increase in benefits can make a meaningful difference in their monthly budget. The COLA adjustment, while it may not entirely cover all rising costs, provides some relief and stability in a fluctuating economy.
As inflation continues to affect costs in nearly every sector, Social Security’s annual COLA adjustments play an essential role in safeguarding beneficiaries’ financial well-being. While not immune to the economic challenges facing the country, this built-in adjustment mechanism is a reassurance that these essential benefits will retain at least some of their value over time.
Though discussions around Social Security’s future continue to raise questions, particularly among younger generations concerned about the system’s long-term viability, the COLA increases offer a sense of stability for those currently relying on these benefits. The continued adaptation of these payments to reflect inflation trends reflects the program’s commitment to supporting its beneficiaries in a meaningful way.