Less than six weeks remain before retirees will get a raise. Last month, the Social Security Administration announced that the next cost-of-living adjustment (COLA) will be 2.5%. The adjustment takes effect on Jan. 1, 2025.

But retirees shouldn’t count on receiving that full amount. Here’s why the average take-home Social Security increase will be roughly 20% lower than they might expect.

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Average retiree Social Security benefits in 2025

Each October, the Social Security Administration determines the annual COLA for all Social Security beneficiaries. The agency has performed this ritual every year since 1975, when automatic Social Security COLAs began.

The COLA is calculated by comparing the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the current year against the average CPI-W for the third quarter of the previous year. The Social Security adjustment is the percentage increase (if any) in the metric, rounded to the nearest 0.1%.

When the Social Security Administration announced the 2025 COLA, it stated that the average retirement benefits would increase by “about $50 per month” next year. In October, the average monthly Social Security benefit for retired workers was $1,924.35. A 2.5% increase would translate to an additional $48.11 per month.

Why the take-home amount will be lower for most retirees

However, most retirees won’t actually see an extra $48.11 (or $50) hit their bank accounts each month from the 2025 Social Security COLA. Don’t worry, though. The Social Security Administration isn’t going to cheat anyone out of their well-deserved increase. There’s a benign reason for the lower take-home amount.

Medicare Part B premiums are automatically deducted from monthly Social Security benefits for anyone enrolled in both Social Security and Medicare Part B — and Part B premiums are increasing in 2025.

On Nov. 8, the Centers for Medicare and Medicaid Services (CMS) announced the premiums, deductibles, and coinsurance amounts for all Medicare programs for 2025. The standard Medicare Part B premium will increase by $10.30 per month to $185.

Therefore, the average take-home increase after the COLA takes effect will be around $37.81 — a little over 20% lower than what they might have expected after seeing the Social Security Administration’s COLA announcement last month.

Of course, we’re only talking about averages here. Retirees whose Social Security benefits are well above the average won’t take as big of a percentage hit from the higher Medicare Part B premiums. On the other hand, retirees with significantly lower-than-average Social Security benefits will feel the sting more. Also worth noting: High-income beneficiaries pay higher premiums for Medicare Part B, and will see greater premium increases next year.

Some good and not-so-good news

There’s also some other news for retirees, both good and not-so-good. While the average year-over-year CPI-W increase for the third quarter was 2.5%, the CPI-W rose by 2.4% year over year in October. This slight improvement was better than the “headline” inflation increase of 2.6%.

The not-so-good news, though, is that prices in some categories that hit retirees more heavily are increasing faster than overall inflation. In particular, medical care services rose by 3.8% year over year.

Inflation may continue to decline in the new year. However, it could also intensify again. Either way, Social Security’s 2025 COLA probably won’t stretch as far as many retirees would like.

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