If it weren’t for Social Security, millions of older Americans would no doubt struggle to keep up with their ongoing expenses. That’s what makes Social Security’s cost-of-living adjustments (COLAs) so important.

The purpose of Social Security COLAs is to help seniors maintain their buying power as inflation drives the cost of living upward. Lawmakers decided to make COLAs automatic in 1975, and since then, Social Security benefits have risen in line with inflation data (or stayed the same).

Image source: Getty Images.

In 2025, Social Security benefits are getting a 2.5% COLA, which happens to be the smallest increase to arrive in a few years. The reason for that seemingly stingy COLA is that inflation cooled nicely in 2024, whereas in previous years, it was higher.

Once 2025’s Social Security COLA takes effect, the average monthly benefit of $1,927 should rise to $1,976. All told, the typical beneficiary is looking at a $49 increase, in theory. In practice, though, many seniors are going to end up with a smaller monthly increase for one big reason.

Will your Medicare Part B premiums eat into your 2025 Social Security COLA?

Seniors who are enrolled in Social Security and Medicare at the same time have their Part B premiums deducted from their monthly benefits automatically. When the cost of Medicare Part B increases from one year to the next, Social Security recipients lose out on a portion of their COLAs.

Meanwhile, the Centers for Medicare & Medicaid Services just released a list of 2025 Medicare costs. And in the new year, the standard monthly Part B premium will be rising from $174.70 to $185. That’s an increase of $10.30.

It also means that the average retiree on both Social Security and Medicare won’t get to enjoy a $49 increase in their monthly benefits at the start of 2025. Rather, that increase now looks more like $39.

For seniors who have savings or robust income streams outside of Social Security, that’s not a big deal. But for those who get the bulk of their retirement income from Social Security, that increase in the cost of Part B could constitute a major blow, leaving them with less of an already meager COLA.

How to cope with a smaller Social Security COLA

Clearly, an uptick in the cost of Medicare Part B is the last thing cash-strapped seniors need at a time when Social Security benefits are only rising by 2.5%. If you’re worried that you won’t fare well financially in the new year, one thing it definitely pays to do is explore your options for joining the gig economy.

The nice thing about taking on gig work is that it can be an extremely flexible way to earn money. You could drive for a ride-hailing service, walk dogs, or do a host of other jobs on your own schedule. And the money you earn from a job of this nature could far surpass the amount of extra money Social Security will pay you in the new year.

If you’d rather get a more traditional part-time job with preset hours, that works, too. You may find that you like having a schedule if you’re a routine-driven type of person.

Either way, it’s important to brace for the fact that your Social Security benefits may not rise all that much in the new year, given that the cost of Medicare B is going up pretty substantially. Generating income of your own could help you avoid a world of financial stress, so it’s worth looking into different options if you rely very heavily on Social Security to make ends meet.

The $22,924 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

View the “Social Security secrets” »

The Motley Fool has a disclosure policy.