Addressing Social Security’s Cost-of-Living Adjustment for 2025

In this episode of the Retirement Made Easy Podcast, we dive deep into the 2025 Cost-of-Living Adjustment (COLA) for Social Security. We break down how the COLA works and what it means for your retirement planning.

With the 2025 COLA coming in at 2.5%, we explore how this adjustment could affect your benefits—whether you’re still working or already collecting Social Security. We also discuss the projected rise in Medicare Part B premiums and why it’s crucial to plan conservatively for future costs.

Tune in to discover how the COLA can be a powerful tool in your retirement strategy, while understanding the importance of not relying too heavily on it. If you’re planning for retirement, this episode is packed with essential insights to help you build a more secure financial future.

You will want to hear this episode if you are interested in…

  • [2:13] Check out our free resources at RetirementMadeEasyPodcast.com
  • [3:18] How Social Security’s cost-of-living adjustment works
  • [8:25] What type of COLA should we project for the future? 
  • [10:36] Expected future cost of Medicare Part B premiums
  • [13:25] The COLA is incredibly powerful
  • [17:40] Retirement is a journey—not a finish line
  • [20:25] Plan conservatively and err on the side of caution

How Social Security’s cost-of-living adjustment works

Every October, the SSA announces the cost-of-living adjustment for the following year. For 2025, the COLA will be 2.5%. But some will get more, while others may get less. Why? If you’re still working while collecting Social Security benefits and your 2024 earnings were among your top 35 working years, you’ll see a bump due to your earnings history.

When could you get less? If you’re on Medicare and your Part B premium comes out of your Social Security check, the new cost of Medicare Part B may offset the COLA. A 5.9% increase in Medicare Part B is expected, pushing the premium from $175 to about $185 per month. This could reduce your effective COLA increase to around 2.2%, depending on your Social Security check amount.

We’re cautious when projecting annual cost-of-living adjustments. Given the Social Security system’s underfunding, we prefer to anticipate a smaller COLA.

Expected future cost of Medicare Part B premiums

On average, Medicare Part B premiums increase almost 6% per year. That’s a lot higher than the cost-of-living adjustment. I would expect this average increase to continue to climb for the next 30 years.

Remember, Medicare Part B is income-based, based on your income from two years prior. If you are below a certain threshold, you’ll pay the regular premium. If you fall above the threshold, the IRMA tax kicks in and increases your premium in stages. 

The COLA is incredibly powerful

Though it seems like a small percentage, the COLA adds up over the projected average 30-year retirement. A Social Security check is a series of payments throughout your life. You’ll receive them once a month for the rest of your life. Most private pensions have no cost-of-living adjustment. With our current cost of living, that fixed check will be less and less every year. While Social Security’s COLA won’t account for all of inflation, it will account for some of it. 

Life insurance companies offer annuities—a fixed monthly check for the rest of your life. Only one insurance company adds a COLA per year. The product isn’t great. But insurance companies won’t offer annuities that have a COLA requiring them to pay you more. Why? It’s not profitable for them (my opinion). 

Listen to the whole episode to learn how I approach Social Security’s annual COLA when it comes to retirement planning. 

 

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