The Social Security Administration (SSA) announced that benefits for more than 72.5 million Americans will increase by 2.5 percent in 2025 but massive benefit cuts would be needed unless Congress takes action soon.
The increase, which will take effect in January for most beneficiaries, is aimed at helping individuals keep pace with the cost of living.
On average, Social Security retirement beneficiaries will see an additional $50 per month in their checks. Supplemental Security Income (SSI) recipients, who number nearly 7.5 million, will see the increase starting December 31, 2024.
The 2025 cost-of-living adjustment (COLA) follows a pattern of moderate increases over the past decade, with the average COLA increase during this period being 2.6 percent.
For context, the COLA for 2024 was 3.2 percent. Social Security Commissioner Martin O’Malley noted that the increase comes as inflation shows signs of cooling, offering some financial relief to recipients who rely on the program for a significant portion of their income.
In addition to the COLA increase, other adjustments to the program will take effect in January.
The maximum amount of earnings subject to the Social Security payroll tax will increase to $176,100 from $168,600 in 2024, based on the increase in average wages. These changes, as well as updated benefit amounts, will be communicated to beneficiaries starting in early December through a newly designed COLA notice.
This streamlined, one-page notice will provide clear, personalized information, including the exact date and amount of the new benefit. Beneficiaries can also access their notices online through the “my Social Security” portal.
Long-Term Challenges for Social Security Funding
While the 2.5 percent increase for 2025 provides immediate relief, the long-term financial stability of the Social Security program remains a significant concern.
According to the latest projections from the program’s trustees, Social Security will only be able to pay 83 percent of scheduled benefits when the trust fund surplus is depleted in 2034, or three years sooner if President-elect Donald Trump follows through on campaign promises to lower Social Security taxes.
That share is expected to shrink further to 73 percent by 2098 if no corrective actions are taken.
A report published in October by the nonpartisan Committee for a Responsible Federal Budget said Trump’s campaign promises — which also include ending taxes on tips, reducing some income taxes, expanding deportations, and imposing tariffs — would take a toll on the Social Security fund, making it “insolvent” within the next six years.
The primary cause of this shortfall is the projected depletion of the Social Security trust funds. If the trust funds run out as expected in 2034 or 2035, benefit payments would need to be reduced across the board by 22 percent. To avoid such cuts, experts suggest that Congress will need to take action soon to ensure the program’s solvency.
One potential solution is adjusting the formula for cost-of-living adjustments (COLA), particularly for those born after 1960. According to Social Security expert Jack Roseman, individuals born before 1960 are unlikely to see changes to their COLA formula, but younger generations may face reduced adjustments, which would cause their benefits to fall further behind inflation.
Possible Funding Fixes: Tax Increases or Benefit Cuts
The future of Social Security depends on finding a sustainable way to fund the program. Several proposals have been suggested, including raising the payroll tax rate or altering the way benefits are distributed. Currently, Social Security is funded by a 12.4 percent payroll tax split equally between employers and employees. One option for addressing the funding gap would be to increase the payroll tax rate, either for both employers and employees or, as proposed in some plans, placing a larger share of the burden on employers. A legislative proposal known as the Social Security 2100 Act, introduced by Rep. John Larson (D-Conn.), would increase the payroll tax rate for employers by 6.2 percent and only apply additional taxes to workers earning more than $400,000. However, the proposal has faced difficulties in gaining traction in Congress.
Another proposed solution is to raise the maximum taxable earnings limit. Currently, workers only pay Social Security taxes on income up to $168,600, but if the taxable wage limit were increased or eliminated, higher-income earners would contribute more to the program. For instance, workers making $250,000 would pay taxes on their entire income if the cap were raised, increasing their total contribution.
In addition to tax changes, another option being considered is increasing the full retirement age, which has already been gradually rising over the past few decades. While tax hikes remain unpopular, raising the retirement age could be a way to reduce the program’s payout obligations without directly reducing benefits. However, this would mean younger generations would need to work longer before becoming eligible for full benefits.
Uncertainty Ahead for Beneficiaries
As the program’s finances come under increasing strain, beneficiaries who rely on Social Security for a significant portion of their income may face difficult decisions in the future. Without adjustments to the system, the 22 percent reduction in benefits projected for the 2030s could force many recipients to cut back on spending, impacting their ability to cover essential costs such as housing, healthcare, and food.
While the 2.5 percent COLA increase will help alleviate some immediate financial pressures for Social Security and SSI beneficiaries, the ongoing discussions around the program’s funding underscore the need for urgent action from lawmakers. Until changes are made, the program’s long-term sustainability will remain a critical issue for millions of Americans.
For more information on the 2025 COLA and updates to Social Security benefits, visit http://www.ssa.gov/cola.