When the Social Security Administration announced in October that benefits would be rising by just 2.5% in the new year, many seniors were disappointed but not particularly shocked. For months, experts had been projecting that 2025’s Social Security cost-of-living adjustment (COLA) would land somewhere in that ballpark. So seeing the actual number become official wasn’t a huge surprise.

Of course, it’s easy to see why Social Security recipients aren’t happy with a mere 2.5% raise. Next year’s COLA is the smallest one to arrive in years. And given that many retirees are struggling to make ends meet already, they’re not going to get much of a boost in buying power if their monthly benefits only increase by 2.5%.

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But recent developments have shed new light on 2025’s Social Security COLA. Unfortunately, they’ve made an already not-so-great situation even worse.

A double blow

Seniors on Social Security have been encouraged to focus on the silver lining associated with a 2.5% COLA — that it’s a sign of cooling inflation. But October’s Consumer Price Index tells a different story.

Last month, annual inflation rose by 2.6%, which means that it’s already outpacing the 2.5% COLA seniors are in line for in 2025. If that trend continues, Social Security recipients could end up losing out on tons of buying power.

To make matters even worse, the Centers for Medicare & Medicaid Services just announced changes to the cost of Medicare Part B. Seniors who are enrolled in Social Security and Medicare at the same time have their monthly Part B premiums deducted from their benefits automatically. So in any given year, an increase in the cost of Part B has the potential to wipe out a Social Security COLA completely.

Thankfully, that’s not expected to happen to the average Social Security recipient who’s also on Medicare in 2025. But the standard cost of Medicare Part B is rising from $174.70 a month to $185. That $10.30 increase is going to eat into many seniors’ Social Security COLA, resulting in an even smaller raise.

How to cope with a disappointing COLA

If you’re worried that your 2.5% Social Security COLA won’t go very far in 2025, rather than resigning yourself to being cash-strapped all year long, aim to make changes to your financial picture. Start by assessing your spending and finding ways to trim expenses. That could mean making smaller adjustments, like replacing cable with a cheaper streaming alternative for entertainment. Or it could mean more drastic changes, like downsizing to a smaller home.

It also pays to look to the gig economy for extra income if you’re concerned that you won’t be able to get by on a mere 2.5% Social Security raise. The amount of money a few hours of gig work pays you could well outpace the extra money you get in your monthly Social Security checks.

All told, Social Security’s 2.5% COLA is looking more and more problematic in light of developments on the inflation and Medicare front. It’s too soon to assume that inflation will continue to tick upward. But the Medicare Part B increase is as official as it’s going to get. Rather than letting these factors hurt your finances in the new year, try your best to find ways to overcome them.

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