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Here's Exactly How the 2025 Social Security COLA Affected Retirement Benefits

Source The Motley Fool

Social Security recipients are now seeing the 2.5% cost-of-living adjustment (COLA) reflected in their monthly benefit payments. This is intended to help seniors and other Social Security recipients keep up with inflation and is based on Consumer Price Index (CPI) data from the third quarter of 2024.

While the 2.5% COLA isn't exactly news at this point, we just got our first look at how it impacted the actual payments sent to retirees. Here's a rundown of the latest Social Security Monthly Statistical Snapshot, and what the COLA means to various types of Social Security recipients.

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How much did Social Security benefits go up in 2025?

The Social Security Administration recently released its December 2024 Monthly Statistical Snapshot. At first, it might sound like this data would be before the 2025 COLA took effect, but it's important to point out how the COLA technically works.

Image source: Getty Images.

The Social Security cost-of-living adjustment officially goes into effect in December of each year -- so technically speaking, the 2.5% adjustment was the 2024 COLA. However, Social Security benefits are paid one month in arrears, so the December benefit is the monthly payment that is physically received in January.

Without further delay, here's how much the average Social Security benefit is for different categories of retirees, compared with what they were the previous month before the COLA was included.

Type of Beneficiary	December 2024 Average (Includes COLA)	November 2024 Average (Before COLA)	Monthly Difference
Retired workers	$1,975.34	$1,925.46	$49.88
Spousal benefits	$930.60	$908.76	$21.84
Survivors benefits	$1,545.57	$1,508.29	$37.28
Disability benefits	$1,439.50	$1,404.51	$34.99
Overall average	$1,834.43	$1,788.12	$46.31

Data source: Social Security Administration, Monthly Statistical Snapshots, Nov./Dec. 2024.

So, the average Social Security retirement benefit increased by nearly $50 per month, or about $600 per year.

Is the 2025 COLA enough?

Now that we've seen the impact of the Social Security COLA on benefits, the question of whether it is enough to actually keep up with inflation or not is another matter.

As mentioned, the 2.5% adjustment came from comparing third-quarter 2024 CPI data to the CPI data from the third quarter of the previous year. However, there are several versions of the CPI, and the specific version used to compute the Social Security COLA is the CPI-W, which is the Consumer Price Index for Urban Wage Earners and Clerical Workers. As the name implies, this measures the impact of inflation on working-age Americans.

There are some types of expenses that disproportionately affect seniors. Healthcare is the most obvious, as older people tend to require healthcare services more than younger people. But there are others. Housing is a big one that isn't quite as obvious, but the reality is that the typical retiree spends more on housing as a percentage of income compared to the overall population.

There is a version of the CPI that takes these things into account, known as the CPI-E. And a recent report by the Congressional Research Service found that if the CPI-E had been used instead of the CPI-W, the COLA for this year would have been 3%, not 2.5%. And it isn't just this year -- the same report found that from January 1985 through January 2024, the CPI-E increased by a total of 23 percentage points more than the CPI-W.

The good news is that there are several legislative efforts underway to replace the CPI-W with the CPI-E in the COLA formula. Nothing is close to the finish line just yet, but it could be on the table when it comes to future Social Security reforms.

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Disclaimer: For information purposes only. Past performance is not indicative of future results.

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