Social Security benefits to rise 2.5% as inflation ticks down

Social Security recipients will see an average of $50 more in their monthly checks next year as the government adjusts for inflation.

The cost-of-living adjustments are based on inflation over the past year.

Thursday’s announcement of a 2.5% increase comes as inflation remains elevated but has improved from price rises that led to the 6% increase in benefit checks in 2022, 9% boost in 2023 and 3.2% rise this year.

The adjustment applies to seniors who collect basic Social Security benefits and those getting Supplemental Security Income payments.

“Social Security benefits and SSI payments will increase in 2025, helping tens of millions of people keep up with expenses even as inflation has started to cool,” said Martin O’Malley, Social Security’s commissioner.

The adjustment is also applied to payroll taxes.

Income up to $176,100 will be subject to the payroll tax for Social Security next year, up from $168,600 this year. Employees pay 6.2% tax and employers pay another 6.2% on income up to the cap. Self-employed people pay the full 12.4%.

Officials said notices about the cost-of-living adjustment will go out in December. The agency promised an improved notice this year that uses “plan and personalized language” and gives exact dates and dollars for the new benefits.

Annual cost-of-living adjustments are built into the law and are based on what’s known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. That is one of the federal government’s measures of inflation.

The COLA is meant to make sure beneficiaries’ checks keep up with basic cost increases.

With Social Security now paying out more each year than it raises in new revenue, the program has been dipping into its putative trust funds to pay benefits.

Under the law, when those trust funds expire — now scheduled for some time early in the 2030s — the program will only pay out what it receives in payroll taxes, which will mean an instant benefit cut.

Some budget experts have suggested using a slower-growing measure of inflation known as the chained CPI to calculate benefit increases, arguing it would trim projected spending increases and give Social Security more stability.

On the other side are Democrats who have called for a faster-growing measure of inflation, saying Social Security already doesn’t pay enough.

“The annual cost-of-living adjustment is vital to ensure our nation’s nearly 70 million Social Security beneficiaries can make ends meet,” said Rep. John Larson, Connecticut Democrat. “However, the COLA is not nearly enough for seniors living on fixed incomes, especially the more than 5 million Americans who receive monthly checks below the poverty level.”

Mr. Larson backs using the CPI-E measure of inflation, which weights health care costs more heavily than the CPI-W.