The Social Security Administration (SSA) makes changes every year to improve the quality of service to all of their beneficiaries and, most importantly, the amounts that they receive. These changes will affect everyone, whether they are a new or old member of Social Security.
The number for the higher percentage is not just made up. Instead, the reflection suggests a way to solve a problem that Congress has had since 1975: how to keep the original goal of the SSA alive. It is important to remember that the Social Security Administration was created in 1935 to help keep seniors from falling into poverty by creating a system that would support them over time.
Why does Social Security need to adjust your maximum benefit?
Social Security (SSA) has set a certain amount that you will receive each time you get a payment. This amount is based on how each of their programs works.
This amount is meant to give you or your family enough money to stay out of poverty. But the small amount you get will only buy you a few things and give you a few services. If prices go up, you will have to cut back on what you buy or get rid of some categories.
Inflation is what this is basically. If you get money from the Social Security Administration (SSA), you do not have many ways to fight this problem because your income comes from the SSA. Because of this, a consistent way to improve your benefits has been put in place.
How does Social Security update your maximum benefit?
The amount of money you get from Social Security each month goes up based on how much inflation has affected you and the other more than 70 million people who get benefits every month. COLA, which stands for “Cost-of-Living Adjustment,” is the method used to add up that percentage of change.
COLA is a way to measure how much inflation has changed prices, and it needs to be set using price data. The source in this case is the CPI-W, which stands for the Consumer Price Index for Urban Wage Earners and Clerical Workers 1.
This CPI tracks the prices of over 200 goods and services over time and changes how important they are based on what families whose main breadwinner works in clerical or wage-paying jobs want.
To find the COLA, the SSA takes the average of the CPI for the third quarter of the year (July, August, and September) and compares it to the same calculation from the previous year. This lets them guess how much inflation has changed between the two time periods.
What will be the expected maximum benefits?
Many guesses are made throughout the year about the different values that the COLA will have at the end of the year. A lot of them are based on how the CPI-W changes from month to month. However, once the COLA is made, it needs to be used in all SSA activities, especially those that have to do with SSA benefits.
At first, most people thought that the COLA only affected monthly Social Security checks, which is partly true. Additionally, the SSA uses the COLA to change other values, such as the maximum taxable earnings that may not be taxed by Social Security; the Retirement Earning Text amount that is not taxed if you continue to work after retiring; and the Substantial Gainful Activity, which is the amount of money you can make while on Disability Insurance before losing your benefit. A lot of settings are changed, including this one.
One important thing that is also changing is the most money you can get from your retirement benefit. This amount is not set in stone; it will change based on when you choose to retire.
The Social Security Administration (SSA) penalizes people who retire early and rewards people who can wait until they reach age 70, which is the max retirement age. Thanks to the 2.5% COLA set in October, the following are the maximum amounts you can get in 2025 based on your retirement age:
- 62: $2,831
- 65: $3,374
- 66: $3,795
- 67: $4,043
- 70: $5,108