The 2025 Cost of Living Adjustment (COLA) is expected to bring a helpful boost to those receiving Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), and Veterans Affairs (VA) benefits.
The projected increase of 3.2% to 3.5% aims to help beneficiaries keep up with inflation and maintain financial stability. In this article, we’ll explain how the 2025 COLA adjustment works, how it’s calculated, and offer tips on managing the increase.
What Is the COLA Increase?
The Cost of Living Adjustment (COLA) is an annual adjustment made to benefits like SSDI, SSI, and VA payments to help recipients keep up with inflation. This increase is important for those on fixed incomes, as inflation can significantly reduce the purchasing power of their benefits over time.
COLA is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures changes in the prices of goods and services like food, housing, and transportation.
Expected 2025 COLA Increase
In 2025, the COLA increase is expected to be between 3.2% and 3.5%. While this is lower than the 8.7% increase in 2023, it is still an essential adjustment to help beneficiaries keep pace with inflation. For those relying on benefits, this increase will make it easier to afford everyday essentials.
Breakdown of the COLA Impact for Different Benefits
1. Social Security Disability Insurance (SSDI)
SSDI provides financial assistance to individuals who can no longer work due to a disability. The 2025 COLA increase is expected to raise the average SSDI benefit by $48 per month.
2024 SSDI Amount: $1,500 (average monthly benefit)
2025 SSDI Increase: The monthly benefit will rise to approximately $1,548.
2. Supplemental Security Income (SSI)
SSI helps people with limited income and resources who are elderly, blind, or disabled. With the 3.2% COLA increase, individual payments are expected to rise to $944, while couples could receive up to $1,415 per month.
2024 SSI Amount: $914 (individual), $1,371 (couple)
2025 SSI Increase: The individual benefit will rise to $944, and the couple’s benefit will increase to $1,415.
3. Veterans Affairs (VA) Benefits
For veterans with service-connected disabilities, VA compensation will also rise by about $48 per month, similar to SSDI adjustments.
2024 VA Amount: $3,900 (for a 100% disabled veteran)
2025 VA Increase: The monthly compensation will rise to about $4,025.
How Is the COLA Increase Calculated?
The COLA increase is calculated using the CPI-W. The CPI-W tracks changes in the prices of a specific group of goods and services.
The Social Security Administration (SSA) compares the CPI-W for the third quarter of one year (July, August, and September) with the same period in the previous year. If inflation has increased, the SSA applies a COLA to adjust benefits accordingly.
Why Does the 2025 COLA Increase Matter?
The COLA adjustment is crucial because it ensures that benefits keep up with inflation. Without COLA increases, fixed-income recipients could see their purchasing power erode as the cost of goods and services rises.
For example, if someone is receiving $1,500 in SSDI benefits, a 3.2% increase would add $48 to their monthly payments, helping them cover the rising costs of living.
Historical Context of COLA Increases
COLA adjustments have ranged from 0% to 14.3% since they were introduced in 1975. The highest increase occurred in 1980, when the COLA was 14.3%. More recently, there was an 8.7% increase in 2023 due to high inflation caused by the economic impact of the pandemic.
While the increases in 2024 and 2025 are expected to be smaller, they still provide important financial relief to recipients.
Managing the 2025 COLA Increase
Although the COLA increase is a welcome change, it’s important to manage this extra income wisely. Here are a few tips:
1. Review Your Budget
Take a moment to reassess your budget to ensure you’re using the extra funds efficiently. With costs rising in many areas, it’s important to plan ahead.
2. Plan for Future Increases
Inflation may continue to rise, so it’s wise to plan for future COLA increases and adjust your spending habits accordingly.
3. Save for Emergencies
If possible, set aside some of the additional funds in an emergency savings account. This will help cover unexpected expenses.
How the COLA Increase Affects Taxes
While many recipients of SSDI, SSI, and VA benefits won’t have to pay taxes on their benefits, the COLA increase may affect some individuals’ tax liability. SSDI and SSI benefits may become taxable if a recipient’s income exceeds certain thresholds. However, VA benefits are generally not subject to federal income tax.
If you’re concerned about the tax impact of your COLA increase, it may be helpful to consult a tax professional for guidance.
The 2025 COLA increase of 3.2% to 3.5% will provide much-needed relief to SSDI, SSI, and VA beneficiaries, helping them keep up with the rising cost of living.
While the increase is slightly lower than the previous year, it remains an essential adjustment to help ensure financial stability. By understanding how COLA works and managing your benefits wisely, you can make the most of the 2025 increase and maintain your purchasing power.
