Retirement or disability benefits: who will see a larger income increase in 2025?

In 2025, Social Security recipients in the United States will receive a 2.5% boost to their monthly benefits thanks to the Cost-of-Living Adjustment (COLA). Announced by the Social Security Administration (SSA) in October 2024, this adjustment reflects efforts to keep Social Security benefits aligned with inflation. While all beneficiaries will see an increase, the exact impact varies depending on the type and amount of benefits received.

Understanding the 2025 COLA and Its Purpose

The Cost-of-Living Adjustment is an annual recalibration based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It ensures that Social Security benefits retain their purchasing power amid rising living costs. In 2025, the 2.5% COLA will benefit recipients of retirement benefits, Social Security Disability Insurance (SSDI), and Supplemental Security Income (SSI). However, the dollar amount of these increases differs based on the specific benefit type and individual circumstances.

How COLA Affects Different Social Security Benefits

Supplemental Security Income (SSI)

SSI offers financial support to individuals with disabilities, blindness, or those aged 65+ who have limited resources. The maximum benefit amounts under SSI are modest compared to other programs.

• Current Benefit Levels:
  • Single individuals: $943 per month.
  • Couples: $1,415 per month.
  • Essential persons: $472 per month.
• 2025 Adjusted Benefits:
  • Single individuals: $967 per month.
  • Couples: $1,450 per month.
  • Essential persons: $484 per month.

Although the increases are small, they provide critical support to households with the lowest incomes, helping to buffer the effects of inflation.

Retirement Benefits

For retirees, COLA adjustments are more impactful in absolute dollar terms, especially for individuals with higher monthly payments.

• Average Retirement Benefit: Currently $1,927 per month (December 2024), set to increase to $1,976 in 2025—a $49 average monthly gain.
• Higher-Income Recipients:
  • A retiree receiving $2,500 monthly will see an increase of approximately $62.
  • A smaller benefit amount, such as $1,500, will yield a lower increase of $37.50.

This adjustment helps maintain retirees’ purchasing power, with those receiving larger benefits seeing a proportionally higher dollar boost.

Social Security Disability Insurance (SSDI)

SSDI supports individuals who can no longer work due to disability. The program uses a formula based on earnings history to determine benefits, resulting in a wide range of payouts.

• Average SSDI Benefit: Currently $1,539 per month, rising by $39 to $1,578 in 2025.
• Maximum SSDI Benefit: Set to increase from $3,822 to approximately $3,917—a $95 boost.

These increases provide crucial assistance to recipients with disabilities, especially those with higher living expenses related to their condition.

Why COLA Impacts Vary Across Programs

The differences in how COLA affects various Social Security programs arise from their unique structures and benefit caps:

1. Benefit Caps: SSI is intended to provide basic income support, limiting the maximum monthly payments. In contrast, retirement and SSDI benefits can scale higher depending on an individual’s earnings history.
2. Proportional Increases: COLA percentages apply uniformly, but higher initial benefits result in larger dollar increases. This ensures that recipients of different programs maintain similar purchasing power relative to their existing benefit levels.
3. Targeted Support: SSI’s focus on individuals with minimal resources means its increases are smaller in absolute terms but impactful for those with no other income sources.

Broader Implications of COLA Adjustments

COLA is not unique to Social Security. Other federal programs, such as veterans’ benefits and federal pensions, often adjust their payments using similar CPI measures. This consistency aims to help millions of Americans keep up with rising costs in an inflationary economy.