The Labor Department is set to reveal the inflation data for September on October 10. Soon after, the Social Security Administration will announce the official cost-of-living adjustment (COLA) for 2025. These adjustments help maintain the purchasing power of Social Security benefits, ensuring they keep pace with inflation.

Many retirees are looking forward to learning how much extra Social Security income they can expect next year, as rising costs have become a significant concern. A Gallup poll from 2024 showed that 63% of U.S. adults felt financial strain from inflation, an increase from 45% in 2021.

The Senior Citizens League (TSCL), a nonprofit advocacy organization, predicts a 2.5% COLA for next year. If this holds true, it would represent the smallest increase for Social Security recipients in four years. All beneficiaries will see their amounts rise by the same percentage, but retirees at specific ages will see the most substantial increases in actual dollar amounts.

Retirees at age 70 will experience the greatest dollar increases in 2025

The average Social Security benefit for retired workers was $1,920 in September 2024. If the 2.5% COLA is applied, this amount will rise by $48 next year.

However, retirees who receive above-average benefits will see their dollar increases exceed $48, while those with below-average benefits will see smaller increases.

The following chart presents the average Social Security benefit for retirees between the ages of 62 and 80. The data comes from a biennial report last revised on June 30, 2024, with figures rounded to the nearest dollar.

According to the chart above, retirees aged 70 as of June 30, 2024, will receive the largest dollar increases next year, as they already have the highest social security benefits.

For example, if the typical retired worker benefit at age 70 is $2,068 per month, a 2.5% COLA would result in an extra $51.70 monthly for that age group. No other group has such high baseline benefits and thus will not receive larger dollar increases.

Social Security benefits are highest for retirees aged 70

The chart indicates that Social Security benefits for retirees usually rise with each year up to age 70, after which they tend to decrease. In essence, retirees at age 70 generally receive the best Social Security benefits. This trend stems from the payment calculation method.

Specifically, benefits for retired workers are calculated based on their lifetime earnings and claiming age, as detailed below:

• Step 1: The Social Security Administration calculates the primary insurance amount (PIA) for every individual using a formula that considers the highest 35 years of earnings. This calculation occurs when a person turns 62, the age at which they become eligible for benefits, but the PIA is adjusted annually as long as they continue working.
• Step 2: The PIA is modified depending on the claiming age. Individuals claiming Social Security before their full retirement age receive a reduced benefit, while those claiming after full retirement age enjoy an increased benefit. However, after age 70, the incentive to delay claiming disappears, making it illogical to wait further.

In both steps, the PIA is affected by annual COLAs linked to inflation, even for those who haven’t yet claimed their benefits. This means three factors influence benefits: lifetime earnings, claiming age, and inflation. Beyond age 70, inflation becomes the sole significant factor. Most individuals are no longer working by this point, hence they cannot boost their benefits through earnings, and waiting to claim Social Security after 70 won’t increase the payout.

So why does this matter? Historically, wages have risen more swiftly than inflation, causing benefits for new Social Security recipients to grow faster than those for current recipients. However, as explained earlier, this trend typically shifts after age 70, which clarifies why retirees at this age often receive the highest Social Security benefits. Consequently, it’s expected that retirees at 70 will likely see the greatest dollar increases in 2025.

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