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Inflation: America’s Top Financial Concern
For the past three years, inflation has consistently ranked as the primary financial worry for Americans, according to Gallup. As such, Social Security recipients are anxiously awaiting the announcement of the 2025 cost-of-living adjustment (COLA) to their benefits.
Upcoming Announcements on COLA
The specifics of the COLA will be revealed after the Labor Department releases September’s inflation data on Thursday, October 10, at 8:30 am ET. Following this, the Social Security Administration will promptly issue a press release with the official COLA for 2025.
Forecasts suggest an increase in benefits of either 2.5% as estimated by the Senior Citizens League, or 3.1% as predicted by the Congressional Budget Office. Both projections indicate the smallest COLA percentage increase for Social Security beneficiaries since 2021. However, the actual dollar amount of the COLA will differ across various states.
Read on to discover which 10 states will see the smallest COLA increases in 2025.
States with the Smallest COLAs for Retirees in 2025
The Social Security Administration periodically releases anonymous benefit data to enhance public understanding and provide transparency for this taxpayer-funded government program. The chart below is derived from the 2024 edition of the Annual Statistical Supplement.
Listed here are the 10 states or districts with the lowest median Social Security benefits for retired workers as of December 2023. The figures are rounded to the nearest dollar:
– 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
In 2025, retirees in these states will receive the smallest dollar increase in their COLAs, a direct consequence of their lower median Social Security benefits. The COLA is calculated by multiplying the baseline benefit by the inflation rate percentage increase.
For instance, with a median benefit of $1,673 per month, Mississippi’s retirees, who receive the lowest benefits in the nation, would see a $41.80 increase with a 2.5% COLA. Conversely, New Jersey retirees, with the highest median benefit of $2,100, would experience a $52.50 increase with the same COLA rate.
Reasons for Smaller Benefits in Certain States
Social Security benefits are determined by an individual’s lifetime earnings and the age at which they claim benefits. A specific formula calculates the primary insurance amount (PIA) based on the inflation-adjusted earnings from the 35 highest-paid years of the worker’s career. The PIA represents the benefit amount if claimed at full retirement age, which is 67 for anyone born in 1960 or later.
Adjustments to the PIA are made depending on the claiming age. Those who begin receiving benefits before reaching full retirement age receive a reduced benefit, while those who delay claiming past full retirement age receive an enhanced benefit.
Why do retirees in some states receive smaller Social Security benefits? The reasons are a blend of random factors and lower median incomes. Geography plays a role only insofar as median incomes vary by state. The location of a retiree’s residence does not directly influence their Social Security benefit.
For example, five of the states with the lowest median Social Security benefits—Mississippi, Louisiana, New Mexico, Arkansas, and Kentucky—also rank among the states with the lowest median incomes, according to the U.S. Census Bureau. In addition, Maine and Montana have median incomes below the national average.
The remaining areas—California, Washington D.C., and Alaska—are anomalies. Despite having median incomes above the national average, their median Social Security benefits fall below the national average. The high cost of living in these locations is a likely explanation. California, Washington D.C., and Alaska rank second, third, and sixth, respectively, for the highest costs of living in the U.S., as per the Missouri Economic Research and Information Center. Workers in these areas may opt to relocate post-retirement to reduce expenses, although moving costs can be prohibitive for low earners. Therefore, higher earners are more likely to relocate upon retirement.
Beyond these explanations, other factors contributing to this discrepancy can largely be attributed to random chance.
Maximizing Your Social Security Benefits: A Hidden Opportunity
If you’re like most Americans, you might be behind on your retirement savings. However, there are several lesser-known “Social Security secrets” that could significantly boost your retirement income. One such strategy could increase your annual benefits by as much as $22,924. By learning how to maximize your Social Security benefits, you can retire with greater confidence and peace of mind. Click here to discover more about these strategies.
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