The 2.5% Social Security cost-of-living adjustment (COLA) for 2025 is the lowest increase since 2021. While any increase is welcome, many retirees may find that it doesn’t keep up with rising costs. Fortunately, there are two financial strategies that could help retirees get more out of their Social Security benefits in 2025.
Understanding the 2025 Social Security Increase
The Social Security Administration (SSA) announced a modest 2.5% increase in benefits for 2025. On average, this translates to an extra $50 per month for retirees. However, given the persistent inflation and rising everyday costs, this boost may feel inadequate for many seniors.
Jim Blair, founder at NSSA Professionals and a former Social Security administrator, acknowledged that while the increase is beneficial, it may not be enough to cover all expenses. “It’s not necessarily keeping up with everything, but it’s better than nothing,” he said.
Government data shows that the measure used to determine Social Security COLA, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), increased by 2.8% over the past year. Another important indicator, core inflation—excluding food and energy—also rose by 2.8% in December, according to the Federal Reserve’s preferred metric.
For retirees looking to maximize their Social Security checks, two potential strategies can help.
1. Adjust Your Tax Withholdings
Many Social Security beneficiaries have a portion of their benefits withheld for taxes—sometimes up to 22%. Adjusting tax withholdings can be a way to access more money each month rather than waiting for a tax refund.
Blair advises that if retirees are struggling financially and are not in a high tax bracket, reducing tax withholdings could free up some much-needed funds. However, he cautions that this strategy comes with risks. If too little is withheld, retirees might owe money when tax season arrives.
To adjust withholdings, beneficiaries must submit Form W-4V to the Social Security Administration, specifying the percentage they want deducted from their benefits. Lowering tax withholdings could lead to an immediate increase in monthly Social Security payments, providing extra financial relief.
2. Request a Medicare Premium Adjustment
Most retirees pay a standard monthly premium for Medicare Part B, which covers medical services and durable medical equipment. In 2025, the base premium is set at $185 per month.
However, higher-income retirees pay more due to an income-related monthly adjustment amount (IRMAA). This surcharge also applies to Medicare Part D prescription drug plans, where the average premium is estimated to be $46.50 per month in 2025.
Medicare premiums are determined based on tax returns from two years prior. If a retiree’s income has dropped due to a significant life event—such as retirement, the sale of an income-generating business, or the death of a spouse—they may qualify for an adjustment.
To request a Medicare premium reduction, retirees should complete Form SSA-44 and submit it to the Social Security Administration. If approved, this adjustment could significantly reduce monthly healthcare costs, allowing retirees to retain more of their Social Security benefits.
The Importance of Financial Planning
For retirees, every dollar counts. While Social Security COLA increases can provide some relief, additional financial strategies can further enhance monthly income. Adjusting tax withholdings and seeking Medicare premium reductions are two practical steps that could help retirees keep more money in their pockets.
As the cost of living continues to rise, staying informed and proactive about financial options is crucial. Retirees should consider consulting a financial advisor or tax professional to explore these strategies and determine the best approach based on their individual circumstances.
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