Next Year's Social Security Benefits to Increase by 2.5% due to Cost-of-Living Adjustment (COLA). However, Several Retirees may not Retain Their Full Increase.
If it weren't for Social Security, numerous elderly Americans would undeniably find it challenging to manage their continuous expenditures. That's why Social Security's cost-of-living adjustments (COLAs) are so vital.
Social Security COLAs serve the purpose of helping seniors preserve their purchasing power as inflation causes the cost of living to escalate. Lawmakers opted to make COLAs automatic in 1975, and since then, Social Security benefits have climbed in tandem with inflation data (or stayed constant).
In 2025, Social Security benefits are set to gain a 2.5% COLA, which marks the smallest boost in a few years. The small COLA for that year is due to the fact that inflation cooled down in 2024, whereas in previous years it was higher.
Upon the implementation of 2025's Social Security COLA, the average monthly benefit of $1,927 is expected to increase to $1,976. In total, the typical beneficiary can anticipate a $49 increase, theoretically. However, in reality, many seniors may find themselves with a smaller monthly increase for one main reason.
Will your Medicare Part B premiums diminish your 2025 Social Security COLA?
Seniors who enroll in Social Security and Medicare simultaneously have their Part B premiums deducted from their monthly benefits directly. When Medicare Part B's cost increases from one year to the next, Social Security recipients lose a portion of their COLAs.
Recently, the Centers for Medicare & Medicaid Services unveiled a list of 2025 Medicare costs. By the beginning of 2025, the standard monthly Part B premium will have climbed from $174.70 to $185. This amounts to an increase of $10.30.
Due to this increment in Medicare Part B's cost, the typical retiree receiving both Social Security and Medicare will not be able to enjoy the full $49 increase in their monthly benefits as of January 2025. Instead, they might only experience an increase of approximately $39.
For seniors with savings or alternative income streams apart from Social Security, this decrease isn't likely to be a substantial issue. However, for those who largely depend on Social Security for their retirement income, the increase in the cost of Medicare Part B could pose a significant challenge, resulting in a diminished ALready meager COLA.
How to manage a smaller Social Security COLA
It's clear that an expansion in Medicare Part B's cost is the last thing financially strained seniors need when Social Security benefits are only increasing by 2.5%. If you're concerned about your financial stability in the coming year, one compelling course of action is to investigate opportunities for joining the gig economy.
The attractiveness of gig work lies in its flexibility. You could work for a ride-hailing service, walk dogs, or undertake a plethora of other jobs on your own schedule. The income generated from a job like this could easily surpass the additional income Social Security will provide in the new year.
Alternatively, you could opt for a more conventional part-time job with set hours. You may discover that you appreciate having a routine if you're someone who thrives on structure.
Whatever route you choose, it's crucial to accept the possibility that your Social Security benefits may not have a significant increase in the new year, given that Medicare Part B's cost is increasing quite significantly. Increasing your income on your own could help you avoid financial strain, so exploring alternative options may be worth your while if you rely heavily on Social Security to make ends meet.
In terms of managing finances during retirement, seniors may find it necessary to adjust their budgets due to the potential decrease in their Social Security COLA. This decrease could be a result of increased Medicare Part B premiums being deducted from their monthly benefits.
The expected 2.5% COLA for 2025 might only translate to a $39 increase for seniors with Medicare Part B premiums, instead of the full $49 increase. As a result, some retirees might struggle to maintain their financial stability, especially those who heavily rely on Social Security for income.
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