The Labor Department will release September inflation data on Oct. 10, and shortly thereafter the Social Security Administration will announce the official cost-of-living adjustment (COLA) for 2025. COLAs protect the buying power of Social Security by ensuring benefits increase at the same rate as inflation.
Retirees are eager to know how much additional Social Security income they will get next year because rising prices have become increasingly burdensome. According to Gallup, 63% of U.S. adults surveyed in 2024 said inflation has caused some degree of financial hardship, up from 45% in 2021.
The Senior Citizens League (TSCL), a nonprofit advocacy group, estimates benefits will get a 2.5% COLA next year. That would be the smallest raise for Social Security beneficiaries in four years. However, while all payouts will increase by the same percent, retirees of a certain age will get the largest COLAs in nominal dollars.
Read on to learn more.
Retirees at age 70 will get the largest nominal-dollar COLAs in 2025
The average Social Security benefit for retired workers was $1,920 in September 2024. That figure will increase $48 next year in the event of a 2.5% cost-of-living adjustment (COLA).
However, retirees with above-average benefits will receive bigger nominal-dollar COLAs, meaning their payouts will increase more than $48. Likewise, retirees with below-average benefits will receive smaller nominal-dollar COLAs, meaning their payouts will increase less than $48.
The chart below shows the average Social Security benefit for retired workers at ages 62 through 80. The information comes from a biennial report last updated on June 30, 2024. Payment amounts have been rounded to the nearest dollar.
Based on the chart above, retired workers aged 70 as June 30, 2024, will receive the biggest nominal-dollar COLAs next year. That’s true because they already receive the largest Social Security benefits.
Consider it like this: If the average retired worker benefit at age 70 is $2,068 per month, and Social Security’s 2025 COLA is 2.5%, then the average 70 year old will receive an additional $51.70 per month next year. No other age group has a large baseline benefit, so no other group will receive a larger COLA.
Retired workers at age 70 typically receive the largest Social Security benefits
As shown in the chart, retired-worker benefits usually increase with each successive age group from 62 to 70, and they usually decline with each successive age group thereafter. In other words, at any given time, retired workers at age 70 typically get the biggest Social Security benefits. That pattern is due to the way payments are calculated.
Specifically, retired-worker benefits are determined based on lifetime income and claiming age, as explained below:
- Step 1: The Social Security Administration calculates the primary insurance amount (PIA) for each person by applying a formula to income from the 35 highest-paid years of work. That happens when a person turns 62, the age at which they become eligible for retirement benefits, but their PIA is recalculated each year for as long as they remain in the workforce.
- Step 2: The PIA is adjusted based on claiming age. People that start Social Security before full retirement age get a smaller benefit, meaning less than 100% of their PIA. People that start Social Security after full retirement age get a larger benefit, meaning more than 100% of their PIA. But the incentive to delay disappears after age 70, so it never makes sense to claim later.
In both steps, the PIA is modified by annual COLAs tied to inflation. That happens even if the person has not started Social Security. In that sense, there are actually three variables that impact benefits: lifetime income, claiming age and inflation. But beyond age 70, inflation is the only variable of consequence. Most people are retired by that point, so they no longer have earnings that could increase their benefit, and claiming Social Security after age 70 would not change the payout.
So what? Wages have historically increased more quickly than inflation, so benefits for new Social Security recipients tend to increase faster than benefits for existing recipients. But for the reasons I just discussed, the tide usually turns after age 70. That explains why 70-year-old retirees typically get the biggest Social Security benefits. It also explains why 70-year-old retirees will likely get the largest nominal-dollar COLAs in 2025.
