Social Security Benefits Are Shrinking

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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.

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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.

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.

Elaine Silvestrini has worked for Kiplinger since 2021, serving as senior retirement editor since 2022. Before that, she had an extensive career as a newspaper and online journalist, primarily covering legal issues at the Tampa Tribune and the Asbury Park Press in New Jersey. In more recent years, she's written for several marketing, legal and financial websites, including Annuity.org and LegalExaminer.com, and the newsletters Auto Insurance Report and Property Insurance Report.