The long awaited Social Security cost of living adjustment (COLA) was announced at the beginning of October, and it was fairly underwhelming for many beneficiaries. After the 2024 inflation rollercoaster and benefits falling short of covering basic needs for many, it was expected that the COLA would help alleviate some of the economic burden.

However, the 2,5% increase that the Social Security Administration (SSA) announced will not even begin to replenish the savings of those who had to dip into them to be able to cover their expenses. The 2024 3,2% COLA felt like enough before inflation started to outpace it in the first three months of the year, and the fear is that, far form keeping retirees out of water, the new increase will continue to make them drown in their increased expenses.

Kelly LaVigne, VP of Consumer Insights at Allianz Life, told Young and the Invested in an interview “Inflation took a financial toll this past year, particularly on retirees, who often rely on Social Security as a key source of income. Even with this adjustment, we know many older Americans who rely on Social Security may find it hard to pay their bills. Social Security is the primary source of income for 40% of older Americans.”

This increase, effective or not, will affect the lives of 68 million Social Security beneficiaries and the nearly 7.5 million people who receive Supplemental Security Income (SSI) benefits. These are some of the most vulnerable people in society, who depend on benefits to make ends meet, and they are the ones that will be grappling with the real consequences of an insufficient COLA.

AARP CEO Jo Ann Jenkins states about the importance of the COLA “The COLA is a vital component of Social Security, ensuring older Americans have an inflation-protected source of income in retirement. This adjustment means older Americans will receive needed relief to help better afford essential items, from groceries to gas.”

What will the new Social Security COLA adjusted benefit be?

The SSA distributes five types of benefits in total, all of which have their own requirements and limits, but they have all been adjusted by the COLA percentage for the new year. The updated amount will reach beneficiaries throughout January as payment dates roll in, with the exception of the Supplemental Security Income (SSI) payment, which will be distributed on December 31^st 2024 due to the distribution rules of benefits (the 1^st of January is a national holiday, and when payment dates fall on holidays or weekends, the payment is advanced to the prior day in which banks are open and post is delivered to ensure no delays in payment that could negatively impact beneficiaries).

Other COLA associated Social Security changes

The SSA manages a lot of figures that have to do with the present or future claim of benefits that will also change in the new year, like, for example, the amount of covered earnings required to earn a Social Security work credit. In 2025, you must make at least $1,810 in covered earnings during a quarter to receive a work credit, for a total of four credits per year at $7,240 in total earnings. The maximum earnings subject to Social Security tax will also be increased to $176,100 to keep up with the increase in salaries.

For those who keep working even after claiming Social Security benefits, the limits of what they can earn before getting deductions by the SSA have also been updated. If you’re getting Social Security benefits but aren’t at full retirement age (FRA) yet, you can earn up to $23,400 in 2025—an increase from $22,320 in 2024—before the SSA starts deducting. For every $2 you make over that limit, the SSA will take back $1. For those who’ll hit their FRA in 2025, there’s a higher limit: $62,160 (up from $59,520 in 2024). Here, the SSA deducts $1 for every $3 earned above this threshold, but only up to the month you reach FRA.

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