Highlights of 2025 Cost of Living Adjustments (COLA)
Inflation for everyday goods continues to affect households, while the Consumer Price Index has subsided from its painfully high rates of increase in recent years.
In stride, the Internal Revenue Service released its 2025 cost-of-living adjustments (COLA). The Social Security Administration also released their 2025 COLA numbers, showing an increase in payments.
Social Security COLA
The 2025 COLA for Social Security will rise 2.5% for most recipients beginning in January 2025.1 This is still a relatively substantial increase compared to most adjustments from the last decade, but pales in comparison to the 8.7% increase in 2023 and 5.9% increase in 2022.2
While some of these increases sound impressive, in the end, the average monthly benefit for all retired workers will increase to $1,976 ($23,712 per year) in 2025. Chances are, most retirees would agree that their actual cost of living increases far exceeded that adjustment.3
The maximum Social Security taxable wage increased from $168,600 in 2024 to $176,100 in 2025. One credit is earned toward benefit eligibility, up to four in a calendar year, with each $1,810 in earnings per credit up to four in a calendar year.3
Those claiming benefits before "full" retirement age while still working will see their earnings test limit increase to $23,400, after which one dollar in benefits will be withheld for every two in earnings. Similarly, the earnings test limit will increase to $62,160 for people who reach “full” retirement age in 2025,3 above which one dollar of benefits will be withheld for every three dollars earned over the limit.3
Increased 2025 retirement contribution limits
Contribution limits for employee participants in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan increase by $500 to $23,500 in 2025. Meanwhile, catch-up contributions for employee participants aged 50 and over remain at $7,500, allowing them to contribute up to a total of $31,000 to their employer-sponsored plan beginning in 2024.4
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