Major Changes Coming to Social Security in October – List of Retirees Set to Receive Increased Payments

Good news for retirees: Social Security benefits are set to increase in 2025, thanks to a cost-of-living adjustment (COLA). This adjustment ensures benefits keep pace with inflation, protecting retirees’ purchasing power. The Social Security Administration (SSA) will soon announce the official COLA for 2025, following the release of September’s inflation statistics by the U.S. Labor Department on October 10.

COLA

The cost-of-living adjustment is vital because it safeguards the value of Social Security benefits by aligning them with rising prices. With inflation hitting many Americans hard in recent years, retirees are especially eager to see how much their income will rise. According to a Gallup poll, 63% of people in the U.S. faced financial hardship due to inflation in 2024, up from 45% in 2021.

The Senior Citizens League (TSCL), an advocacy group, forecasts a 2.5% COLA for 2025. While this is the smallest increase in four years, it’s still essential. For many retirees, even a modest increase can help alleviate the burden of rising living costs.

Benefits Increase

In September 2024, the average monthly Social Security benefit for a retired worker was $1,920. With a 2.5% COLA, the average retiree will see an additional $48 per month next year. However, the amount of the increase varies based on each retiree’s monthly benefit. Those receiving above-average benefits will see a more significant increase, while those with below-average benefits will receive smaller increases.

For example, a 70-year-old retiree receiving $2,068 per month would see their benefit rise by approximately $51.70 in 2025. This pattern highlights how the largest nominal dollar increases tend to go to retirees with higher benefits.

Benefits

One key aspect of Social Security benefits is that they grow with age—up to a point. Retirees who wait until age 70 to claim their benefits receive the highest payouts. This is due to how Social Security calculates benefits, which is based on a worker’s earnings over their 35 highest-paid years.

Here’s a simplified breakdown of how Social Security payments are determined:

1. Primary Insurance Amount (PIA): The SSA calculates each person’s PIA based on their top 35 years of income when they reach age 62.
2. Claiming Age: Retirees can begin receiving benefits at age 62, but they get a reduced payout. If they wait until full retirement age (typically 66 or 67), they get 100% of their PIA. However, if they delay claiming benefits until age 70, they receive an even higher payout.
3. Inflation Adjustments: Benefits are also adjusted annually for inflation, regardless of whether a person is already receiving them.

After age 70, delaying benefits no longer increases payouts. Instead, inflation becomes the primary factor affecting Social Security checks. Retirees who wait until age 70 to claim benefits receive the highest monthly checks, making this age group the biggest beneficiaries of COLA increases.

Delaying Benefits

The advantage of waiting until age 70 to claim Social Security is that benefits increase each year you delay claiming, up to that age. This is due to the way the SSA calculates benefits—people who wait receive more than 100% of their PIA. The downside, however, is that this increase stops at age 70, so waiting beyond that point offers no further financial advantage.

For example, a retiree who claims benefits at 62 might receive 75% of their PIA, while someone who waits until full retirement age (66 or 67) would receive 100%. A person who delays until age 70 would receive around 132% of their PIA, significantly increasing their monthly income.

Inflation

After age 70, inflation adjustments are the only way benefits can grow. This makes COLA crucial for older retirees, as they no longer have wages that could impact their benefits. Additionally, as wages have typically outpaced inflation, those retiring after age 70 often receive the largest checks. The 2025 COLA will provide a boost for these retirees, who tend to benefit the most from nominal dollar increases.

Though the upcoming 2.5% COLA may seem modest, it will still provide much-needed relief for retirees grappling with inflation. By keeping benefits aligned with rising costs, Social Security helps ensure financial stability for millions of Americans.

FAQs