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The Biden administration seems to have navigated a tricky economic situation, keeping inflation in check without triggering a recession. While inflation is easing, it’s still impacting retirees’ budgets. The unfortunate news is that this means a smaller Social Security cost-of-living adjustment (COLA) for 2025.
Social Security COLA 2025: A Smaller Increase
Your 2025 Social Security COLA will show up in your January check. So, as we head into the holiday season, many retirees will see their retirement income slightly squeezed. The Social Security Administration (SSA) has announced that the 2025 Social Security cost-of-living adjustment will be just 2.5%. This is a significant decrease from the 8.7% COLA recipients saw in 2022.
Also remember that a smaller COLA might increase the taxes you pay on your Social Security benefits.
How is the Social Security COLA Calculated Each Year?
The SSA uses the average inflation in the third quarter, based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), to determine the Social Security COLA for the next year. It’s a bit of a complicated formula but ultimately, it helps adjust benefits to keep up with rising prices.
Does the Social Security COLA Even Matter?
Hopefully, your financial advisor has done a great job helping you create a retirement income stream that you can depend on. Ideally, this income stream is so substantial that the annual Social Security COLA doesn’t affect your bottom line. For many retirees, that’s not the reality. In fact, roughly 12% of men and 15% of women rely on Social Security for over 90% of their retirement income. That means the 2.5% COLA will be a real concern for many.
For 2025, the average Social Security check is projected to be around $1,968 per month. This amount, on its own, isn’t enough to cover all expenses. You’ll want to consider other income streams to supplement Social Security. Living on a fixed income, every little bit counts.
What is the Maximum Social Security Benefit for 2025?
The maximum Social Security benefit in 2025 depends on your retirement age. If you retire at full retirement age, the maximum benefit would be $4,018 per month. But if you retire earlier at 62, it’s $2,831, and if you wait until 70, it’s $5,108. You may want to consider the long-term implications of when you decide to claim your benefits.
- Full Retirement Age (FRA): $4,018
- Early Retirement Age (62): $2,831
- Late Retirement Age (70): $5,108
Remember, these are the maximums. Most people will receive much less. Don’t just rely on Social Security; consider supplementary income to maintain your desired lifestyle in retirement.
How to Get Your Own Personalized Social Security Estimate
Visit ssa.gov and download your personalized Social Security retirement estimate. This estimate will project your benefits based on your work history and planned retirement age. These estimates are usually updated annually, so it’s a good idea to check in regularly. Understanding your estimated Social Security benefits allows for better retirement planning. While Social Security is valuable, it isn’t enough on its own for most people. Supplementing your retirement income is key to a secure and comfortable future.
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