Although plenty of seniors manage their expenses just fine without having to wait for their next Social Security check to arrive, many retirees rely heavily on those monthly benefits. Because of this, it's natural for retirees to want updates on their annual cost-of-living adjustments, or COLAs.
The purpose of COLAs is to help ensure that Social Security recipients don't lose buying power from year to year as inflation drives living costs upward. Imagine if you were to start out collecting a monthly benefit of $1,900 this year without that number ever increasing. Clearly, you'd struggle to keep up with rising bills. Thankfully, COLAs are designed to help prevent that (whether they actually do the job well is another story).
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At this point, a lot of seniors are eager to know what next year's Social Security COLA will look like. And there are estimates available based on inflation readings to date.
But it's too early in the year to determine how much of a raise Social Security recipients will get in 2025. Even once that information becomes available, there's another huge wild card factor that must be accounted for.
How much more expensive will Medicare be in 2025?
Social Security COLAs are based on third-quarter inflation data. Because of this, it's too early in the year to get an official 2025 COLA reading.
It may help you to know that the nonpartisan Senior Citizens League thinks benefits will rise 2.57% in 2025. But that's really nothing more than a guess -- albeit an educated one.
In fact, seniors on Social Security will have to wait until October for an official 2025 COLA announcement. But even once an official COLA comes through, there's another factor that will play a big role in determining how much more money Social Security recipients are able to pocket. And that factor is how much Medicare Part B rises from 2024 to 2025.
Seniors who are signed up for Social Security and Medicare have their monthly Part B premiums automatically deducted from their benefits. But if the cost of Medicare Part B increases substantially, it could eat into seniors' COLA next year.
In 2024, the standard monthly Medicare Part B premium rose from $164.90 to $174.70. Meanwhile, Social Security benefits rose 3.2% in 2024, which took the average monthly payday from $1,848 to $1,907 at the start of the year. But because the cost of Medicare Part B rose by $9.80, some Social Security recipients did not receive their complete COLA this past January.
Try not to be too reliant on Social Security COLAs
It's one thing to want your Social Security benefits to rise from one year to the next. It's another thing to be truly dependent on an increase to stay afloat.
A far more ideal situation is to build up a retirement nest egg so that you're able to dip into your savings and supplement your Social Security income nicely. This way, if there's a year with a less-than-generous COLA or a large Medicare Part B increase, your retirement finances won't automatically get thrown for a loop.
You should also know that building a retirement nest egg doesn't have to mean sacrificing a third of your paycheck. If you save $325 a month over 40 years in a retirement plan whose investments give you an 8% average annual return, which is a bit below the stock market's average, you could end up with a nest egg worth just over $1 million.
Of course, if you're already retired, it's clearly not possible to go back in time and build more savings. In that case, try to make lifestyle changes that free up income, such as downsizing or relocating to an area with a more affordable cost of living.
If you're able to pocket $350,000 in a home sale and buy a replacement property for $250,000, that gives you a $100,000 cushion to work with. That's money you can tap during those periods when Social Security's COLA isn't much to write home about.
You can also look to the gig economy as a current retiree to drum up extra income. If you start bringing in $100 per week doing work that isn't too difficult or stressful, you may reach a point where you don't need to worry about what your upcoming Social Security COLAs look like.
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