The 2025 Social Security COLA projection has decreased somewhat from the initial forecast
The cost-of-living (COLA) increase for retirees on Social Security income is predicted to be the lowest since 2021. With inflation continuing to decline, the most recent COLA forecast is 2.5%, a minor drop from the estimate of 2.6% from last month. David Payne, the chief economist at Kiplinger, has revised his estimate for the 2025 COLA. It is based on the inflation data that the Bureau of Labor Statistics issued on Wednesday.
Given that the average monthly benefit for retirees is approximately $1,870, a 2.5% COLA would result in an increase of roughly $47 monthly or $564 annually. Seniors will find it challenging to keep up with the ongoing increases in the price of energy, clothing, transportation, and housing, which are what are causing the current inflation rate to rise.
Social Security benefits will begin to reflect the 2025 COLA in January of that year. This occurs annually, albeit on rare occasions, weekends or holidays may cause the payment to arrive a few days early.
These ten states' retirees will earn the lowest Social Security COLA COLAs in 2025
Periodically disseminating anonymized benefit data, the Social Security Administration hopes to foster public knowledge and bring transparency to a taxpayer-funded government program. The data in the graphic below comes from the Annual Statistical Supplement for 2024.
The ten states (or districts) where the median Social Security payout for retired workers was the lowest as of December 2023 are listed below. To the closest dollar, the monthly payment amounts have been rounded.
- Mississippi: $1,673
- Louisiana: $1,674
- New Mexico: $1,696
- The District of Columbia: $1,696
- Arkansas: $1,717
- Alaska: $1,733
- Maine: $1,741
- Kentucky: $1,748
- Montana: $1,751
- California: $1,767
The ten states mentioned above will provide the lowest cost-of-living adjustments (COLAs) to retirees in terms of money in 2025. This is accurate given that their median Social Security benefits are the lowest and that COLAs are calculated by multiplying the base benefit by the percentage increase in inflation.
As an illustration, consider this: With Mississippi having the lowest monthly median benefit for retired workers—$1,673—a 2.5% COLA would increase the monthly payout by roughly $41.80. Similarly, New Jersey has the highest median benefit for retired workers ($2,100), thus using the same 2.5% COLA would increase the monthly payout by $52.50.
Why Social Security COLA payouts for retired workers are reduced in some places
Benefits from Social Security COLA in 2025 are determined by a claimant's age and lifetime income. To calculate a worker's main insurance amount (PIA), a formula is applied to the inflation-adjusted wages from the 35 highest paid years of their employment. When a worker claims Social Security at full retirement age (67 for those born in 1960 or after), they will receive the Principal Item Award (PIA).
The age at which a claim is made modifies the PIA. A worker's benefit is reduced if they begin receiving Social Security benefits before reaching full retirement age; that is, they receive less than 100% of their PIA. Employees who begin receiving Social Security benefits after reaching full retirement age also benefit more, receiving over 100% of their PIA.
"Why do retirees in certain states get smaller Social Security benefits?" is the question that now needs to be answered. Reduced median wages combined with random chance provide the solution. Geographical considerations enter the picture, but only because state-by-state variations exist in median income. A retired worker's choice of residence has no further bearing on their Social Security payout.
To put it another way, the U.S. Census Bureau lists Mississippi, Louisiana, New Mexico, Arkansas, and Kentucky as five of the ten states with the lowest median Social Security payouts. These states also happen to have some of the lowest median earnings. Furthermore, the median incomes of two additional states, Maine and Montana, are lower than the national average.
The final three states or districts—Alaska, Washington, D.C., and California—are peculiarities. Since their median salaries are higher than the national average, their median Social Security benefits ought to be higher as well. The extraordinarily high cost of living in such locations could be one reason for the disparity.
According to the Missouri Economic Research and Information Center, the states with the second-, third-, and sixth-highest expenses of living in the country are California, Washington, D.C., and Alaska, respectively. In order to save money in retirement, workers in certain states might be more likely to move. However, low-earners may find the costs of moving to be too high to bear. High incomes might be more likely to relocate after retirement in that case.
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