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
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your WalletInterest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.
-
I'm a Retirement Planner: These Are Three Common Tax Mistakes You Could Be Making With Your InvestmentsDon't pay more tax on your investments than you need to. You can keep more money in your pocket (or for retirement) by avoiding these three common mistakes.
-
Seven Surprising Reasons Retirees Are Going Back to WorkSure, money is a big reason to come out of retirement, but it's not the only reason retirees are doing it.
-
Kickstart Your 2026 Retirement Plan NowRetirement can feel far-off, or too close for comfort, depending on where you’re at. But one thing’s clear — now is the ideal time to get your retirement plan in order.
-
Don't Toss It! Why Your Medicare Annual Notice of Change MattersIf you have Medicare Part D or a Medicare Advantage plan, reviewing your Annual Notice of Change is crucial. It can save you money and ensure you can still see your preferred doctors and hospitals.
-
I'm 65 and My Property Taxes and Insurance Keep Going Up. How Can I Afford My House in Five Years?The costs of homeownership may continue to rise in retirement. Here's how to manage that.
-
Answers to Every Early Retiree's Questions This Year, From a Wealth AdviserFrom how to retire in a crazy market to how much to withdraw and how to spend without feeling guilty, a financial pro shares the advice he's given this year.
-
Boost Your Retirement Savings in Your 50s with These Six MovesIf you want to supercharge your nest egg in the run-up to retirement, follow these strategies.
