Your 2025 Social Security Cost-of-Living Adjustment (COLA) may not go as far as you expect. Here’s why

All Social Security recipients will get a 2.5% cost-of-living adjustment (COLA) next year — or at least they will on paper. This will increase monthly benefit amounts for all recipients, including those claiming spousal Social Security.

At the same time, a crucial retirement expense will increase in 2025. It probably won’t eat up your entire COLA, but it could leave you with less to spend than you expected.

Image source: Getty Images.

Medicare Part B premiums will increase next year

Seniors on Medicare will pay a monthly premium of $174.70 for Part B coverage in 2024. Next year, we’ll see that increase to $185.00 — an increase of $10.30. If you haven’t claimed Social Security yet, you’ll pay this premium out of pocket, just as you would with any private health insurance plan.

When you start Social Security, your Part B premiums generally come out of your monthly benefit checks. You can opt out of this, but then you have to pay this bill separately every month. It’s often more convenient to just get the premium out of your checks so you don’t have to remember to pay it yourself.

This means that the social benefit you actually receive will be less than your stated monthly benefit. For example, the average monthly Social Security benefit is expected to increase $49 to $1,976 in 2025. But if you’ve had Medicare Part B premiums withheld, you’ll actually get just $38.70 more per month next year, and you’ll only have $1,791 to cover your other expenses after detention.

High earners may lose even more from their Social Security benefits because Medicare charges higher Part B premiums to seniors with incomes above certain thresholds, as outlined in the table below.

Data source: Center for Medicare & Medicaid Services.

These people are likely used to paying higher Part B premiums because of their high incomes, but they may still need to adjust their budgets a little to accommodate higher Medicare costs next year.

Start planning for 2025

The effect that higher Medicare Part B premiums have on your Social Security benefit is noticeable because it comes directly out of your checks. But that’s not the only cost that will increase next year. Other aspects of Medicare, including Part A deductibles and copayments and Part B deductibles, are also increasing.

There are also day-to-day expenses such as food, housing, utilities and transportation to address. These have also increased due to inflation. Although the cost of goods isn’t rising as fast as it was a few years ago, even a small increase can take a toll on retirees, especially those without enough personal savings to supplement their Social Security checks. That’s why it’s important to have a budget going into 2025 so you understand how far your checks will go and how much you need to cover with income from other sources.

If you haven’t already, you should receive a personal COLA notice from the Social Security Administration sometime this month that gives your exact 2025 Social Security benefit. You can also access this through your message center if you have one my social security account.

Try to come up with a plan to cover what Social Security won’t want next year. This may involve cutting back on expenses or perhaps even taking on a part-time job to increase your disposable income. If that’s not an option, check to see if you qualify for other government benefits, e.g Supplemental Security Income (SSI)to help you make ends meet.