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.
Sign up for Kiplinger’s Free E-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
-
What About Those ‘Guaranteed’ Life Insurance Ads?Guaranteed life insurance policies can sound tempting if you've been declined for insurance elsewhere. Here are four downsides and one alternative.
-
13 Answers to Pressing Social Security QuestionsFrom smart claiming strategies for couples to tips on maximizing your monthly check, we have advice that can help you.
-
13 Answers to Pressing Social Security Questions
From smart claiming strategies for couples to tips on maximizing your monthly check, we have advice that can help you.
-
Keep Tax Collectors at Bay with Muni Bond FundsMunicipal bonds can be good insurance against inflation — and interest is tax-free. But as with all investments, understanding risk is key.
-
Eight Tips From a Financial Caddie: How to Keep Your Retirement on the FairwayThink of your financial adviser as a golf caddie — giving you the advice you need to nail the retirement course, avoiding financial bunkers and bogeys.
-
The '8-Year Rule of Social Security' — A Retirement RuleThe '8-Year Rule of Social Security' holds that it's best to be like Ike — Eisenhower, that is. The five-star General knew a thing or two about good timing.
-
Tips for Expat Retirees, From Expat RetireesYou may enjoy a lower cost of living by moving abroad, but it requires careful planning.
-
You Were Planning to Retire This Year: Should You Go Ahead?If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get ItThe Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning PlaybookConsider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.
