The 2025 Social Security Cost-of-Living Adjustment (COLA) Might Not Increase Your Monthly Benefits as Much as You Think

Key Points
Social Security beneficiaries receive a cost-of-living adjustment every year, based on inflation.
One big expense for seniors is growing more than twice as fast as the inflation measure used to calculate the COLA.
More and more seniors will see a chunk of their COLAs taken away due to taxes in 2025.

These factors could completely negate any raise you'll receive from Social Security.

Seniors collecting Social Security receive a raise almost every year to help their checks keep up with the rising cost of living. The government is still a few weeks away from finalizing the numbers to calculate next year's cost-of-living adjustment, or COLA. If everything goes as expected, Social Security recipients should receive a 2.5% bump to their benefits starting in January.

That number may be disappointing after 2023's 8.7% COLA and this year's 3.2% adjustment. On top of that, many seniors might not even see a 2.5% increase to their monthly checks. Here's why.

The cost of Medicare is climbing faster than inflation
The Social Security Administration (SSA) automatically deducts Medicare Part B premiums from beneficiaries' checks if they're enrolled in the government-sponsored health insurance program. You become eligible for Medicare at 65, and the SSA will automatically enroll you in Part A and Part B if you've already been collecting retirement or disability benefits.

The cost of Medicare premiums goes up every year to cover the costs of providing healthcare to America's seniors. The Medicare Board of Trustees estimated an increase in the monthly Part B premium for most households from $174.70 to $185.00. That's a 5.9% increase in costs, much more than the 2.5% estimated COLA.

To put it another way, the average Social Security beneficiary currently receives $1,872 in monthly retirement benefits. A 2.5% increase to that average is $46.80 per month, but approximately $10.30 of that will go toward paying higher Medicare premiums. As a result, the average beneficiary will only receive a boost of about 2.2% to their current checks.

Don't forget about taxes
The Social Security Administration will only withhold taxes from your monthly checks if you ask it to, and then only in preset percentages ranging from 7% to 22%. But whether the SSA withholds taxes from your monthly check or not, next year's COLA is likely to come with an extra tax burden for many retirees.

The way the federal government taxes Social Security is based on a metric called combined income, which is equal to half your Social Security benefits, plus your adjusted gross income and any untaxed interest income. If your combined income exceeds certain thresholds, a portion of your Social Security benefits count as taxable income that's subject to federal income tax.

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