You read that right: Social Security benefits are shrinking next year, even though you'll receive slightly more money in your monthly check. A relatively low increase in Social Security benefits in 2025, coupled with a higher percentage increase in Medicare premiums, continues to erode the purchasing power of Social Security retirement benefits.
If you get Social Security, you’re receiving a cost-of-living adjustment (COLA) of 2.5% for 2025, lower than 2024’s COLA of 3.2% and the 40-year record of 8.7% in 2023.
At the same time, the monthly premium for traditional Medicare Part B will increase by nearly 6%, about the same percentage it went up this year. So, on a percentage basis, your monthly Medicare Part B premiums are increasing at roughly twice the rate of your Social Security benefit.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Benefit calculations
The Social Security COLA is calculated using a government inflation index that critics say fails to account for higher health care spending by older people. Medicare premium increases are calculated based on spending by the program, not general inflation. Consequently, the premiums beneficiaries are charged for Medicare typically increase at a faster pace than Social Security benefits, according to the Congressional Research Service.
A service report found that from 2000 to 2018, Social Security COLAs averaged a 2.2% annual increase, resulting in a cumulative benefit increase of approximately 50%. This was considerably less than the average 6.1% annual increase in standard Medicare Part B premiums, which resulted in Medicare Part B premium growth of close to 195% over the same period.
Advocates say beneficiaries are losing spending power every year Shannon Benton, executive director of The Senior Citizens League, argues that the COLA should be calculated using an inflation index related to the spending of older people, known as the CPI-E, for consumer price index-elderly and that Congress should mandate a minimum COLA of 3%. “Our research shows that 67% of seniors depend on Social Security for more than half their income and that 62% worry their retirement income won’t even cover essentials like groceries and medical bills,” Benton says.
Ramsey Alwin, president and CEO of the National Council on Aging, says the COLA is “nowhere near enough to allow older adults to afford their true cost of living.” He says the index used to calculate it is “inadequate because older adults have different needs and higher health care expenses” than the general population.
The 2025 base Part B monthly premium is $185. Democrats in Congress have introduced legislation that would update the COLA formula. Republicans have advocated requiring annual congressional approval for COLAs, which are now automatic.
People need Social Security
Meanwhile, over half (53%) of non-retired adults say they expect to rely on Social Security benefits to pay for necessary expenses once they retire, yet 73% are concerned that their promised benefits will not be paid upon retirement age, according to the results of a Bankrate survey. Among retired adults, 77% rely on Social Security to pay for necessary expenses, while only 21% say they are not reliant.
In addition, 69% of Baby Boomers say they will rely on Social Security benefits once they retire, while 81% are concerned they will not receive the benefits if the fund runs out.
Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.
Related Content
-
10 Cities Where Grocery Prices Are HighestThese 10 cities are paying up to 33% more than the rest of the country to keep food on the table.
-
Amid Mounting Uncertainty: Five Forecasts About AIThe Kiplinger Letter With the risk of overspending on AI data centers hotly debated, here are some forecasts about AI that we can make with some confidence.
-
Medicare to Cover Obesity Drugs Under Trump Deal for as Little as $50. What You Need to KnowTrump's deal slashes GLP-1 drug costs for Medicare beneficiaries and others, unlocking coverage for millions with obesity and related conditions.
-
Here's How to Plan This Year's Roth Conversion, From a Wealth ManagerWhile time is running out to make Roth conversions before the end of the taxable year, consider taking your time and developing a long-term strategy.
-
Four Times You Need a Second Opinion on Your Financial PlanIs your financial plan fit for purpose — or is your adviser peddling an outdated strategy? When you see these red flags, it's time for a second opinion.Evan
-
Cash In on Your Medicare Advantage Flex Card Perks Before They DisappearWith the 2025 rapidly coming to a close, here's how Flex Cards work and a guide on the best items to stock up on before December 31.
-
How to Calm Your Retirement Nerves When It's Time to Shift from Savings Mode to Spending ModeTransitioning from saving to spending in retirement can be tricky, but devising a strategic plan can help ensure a smooth and worry-free retirement.
-
Why Wills and Trusts Aren't Enough in the Great Wealth Transfer, From an Attorney Who KnowsFamilies need to prepare heirs through communication and financial know-how, or all that money could end up causing confusion, conflict and costly mistakes.
-
Private Markets for Main Street: What Financial Advisers' Clients Need to KnowWith product innovation 'democratizing' private market access for everyday investors, advisers must step up their game to educate clients on the pros and cons.
-
HSAs and Medicare: The Eligibility QuizQuiz Test your basic knowledge of HSA accounts and Medicare in our quick quiz.
