Why Your Social Security Benefits May Shrink in 2025 Despite COLA Increase

Social Security beneficiaries required a guaranteed method to sustain their purchasing power over time; thus, automatic cost-of-living adjustments, or COLAs, were implemented in 1975. Social Security benefits may only be raised through special legislation before 1975. COLAs have been linked to inflation ever since they were made automatic. Fortunately, this year has seen a slowdown in inflation, as you may have noticed, and for this reason, the new cost of living adjustment will only increase by 2.5%. That is somewhat of a setback when compared to this year’s 3.2% COLA, but a 2.5% COLA is also rather consistent with the average Social Security COLA over the previous ten years. However, some people receiving Social Security benefits may not be able to keep the full amount of their COLA in 2025. Here are some reasons why yours may be reduced.

Why will Social Security benefits be reduced in 2025?

Medicare costs will likely increase

It is your responsibility to ensure that your monthly Part B premiums are paid if you are enrolled in Medicare but have not yet received Social Security benefits. This is a little easier if you are also receiving Social Security and Medicare because your Social Security benefits are automatically reduced by your monthly Part B costs. The issue, however, is that Medicare Part B is becoming more expensive in 2025. The normal monthly Part B premium, which is currently around $174, will be from now on $185. Your Social Security COLA will decrease as a result of that roughly $10 rise, giving you a somewhat smaller raise in the coming year.

Increases in Medicare will never do more than eliminate your COLA

Due to increased Medicare expenditures, you might be disappointed to see your Social Security COLA decrease in 2025. However, there is one thing to be grateful for: your Social Security income will never decrease from year to year due to Medicare Part B increases. The maximum any Part B increase can do is lower your Social Security COLA to zero because of the so-called hold harmless provision. 

Regardless of Medicare’s future, you are therefore assured of receiving at least the same amount of Social Security at the beginning of a given calendar year as you did in December of the previous year, unless there is a specific reason for a smaller check (for example, having benefits garnished because of a past-due tax bill or receiving a reduced check for exceeding Social Security’s earnings-test limit).

Naturally, the majority of Social Security beneficiaries won’t have to be concerned about their 2025 COLA being eliminated. Without considering Medicare, the average beneficiary is looking at a monthly benefit rise of around $50, while the normal Part B payment is only increasing by about $10. Even after deducting $10, the average Social Security beneficiary who is enrolled in Medicare still sees an increase of almost $40. The good news is that you could be able to stretch any increase in your Social Security income more readily if inflation keeps slowing down.

How much will the Social Security benefits increase in the coming month? 

Based on the last confirmed cost of living adjustment (COLA), Social Security benefits will increase by 2.5% starting in January 2025 for those recipients who qualify for the retirement, survivor, and disability insurance (RSDI) program. Considering this percentage increase, beneficiaries will receive the following payment amounts: