Social Security's 2025 COLA Helps, but Seniors Still Face Cost-of-Living Crisis

What You Need to Know

The Social Security Administration has set next year’s benefit adjustment at 2.5%.
One analyst observes that the monthly benefit increase, while welcome, won’t even cover a week of groceries.
Advisors and clients must study up on big changes to Medicare Part D as they budget for 2025.

Social Security beneficiaries will get a 2.5% “raise” next year thanks to the program’s annual cost-of-living adjustment, which was announced Thursday based on newly released third-quarter inflation data.

Any benefit increase will be welcomed by the typical retiree, the independent Social Security analyst Mary Johnson told ThinkAdvisor in an email, but it’s also important to put the 2025 COLA in perspective.

“It’s barely enough to buy three days of groceries,” Johnson said, noting that this is the first year in which she is analyzing the COLA as a retiree. “Meanwhile, my Medicare Part D costs are rising 750%. … With average retiree benefits rising by about $48 per month, that’s only going to buy about 14 gallons of gasoline per month at today’s prices.”

The truth is that many seniors are facing a cost-of-living crisis, Johnson said, and she specifically urged financial advisors and their clients to study up on big changes happening to Medicare Part D as they do their budgeting for 2025. The potential cost increases for many will dwarf the 2025 COLA.

“New Part D changes, which were intended to lower drug costs by capping the out-of-pocket maximum at $2,000, appear to be causing surprise higher drug costs due to rising premiums and out-of-pocket co-insurance for potentially millions of Part D beneficiaries,” Johnson warned. “I’m one of them.”

What’s Up With Part D?

Johnson noted that she is enrolled for 2024 in a popular Aetna Part D plan with a $5 per month premium, explaining that her three generic drug prescriptions are available (before the deductible) with no copayment. That plan, which only cost Johnson about $63.60 for the year, was discontinued in 2025.

“In 2025 my lowest-cost choice to replace that plan would result in increasing my premiums and out-of-pocket costs by $476 — a total jump of 750%,” Johnson said. That estimate is based on the same three generic drugs she’s currently taking.

Johnson said many other retirees could find themselves facing a similar situation as they shop around this fall. As in any given year, any given retiree’s evolving health and financial situation could warrant changing their coverage choices.

A new ThinkAdvisor analysis of 2025 plan data shows that in the typical state, the average monthly drug plan premium will increase about 23%, to $75 per month, and the number of drug plans available is expected to drop sharply.

“Medicare Part D enrollees really need to compare their health and drug plan options this fall,” Johnson emphasized. “Open up that notice from your Part D plan or check your online Medicare account. You don’t want to get to the pharmacy counter in 2025 to learn you no longer have drug coverage because your Part D plan ended.”

Johnson said more enrollees in free-standing Part D plans may be looking into Medicare Advantage plans offering drug coverage for 2025. In 2024, about 54% of Medicare beneficiaries are enrolled in Medicare Advantage plans, which offer all the medically necessary health benefits required by Medicare, she observed.

“Most offer coverage for Part D drugs,” Johnson noted. “The plans are popular for no, or low premiums, and often offer additional benefits for dental, vision and hearing services not covered under traditional Medicare.”