If you’re retired and receiving Social Security, the annual Cost-of-Living Adjustment (COLA) can feel like a lifeline. COLA is designed to help your benefits keep pace with inflation, ensuring that rising costs don’t eat away at your income.
Every year, retirees across the U.S. eagerly wait to see how much their benefits will increase, hoping for a raise that keeps up with rising expenses like groceries, healthcare, and housing. However, 2025 may bring disappointing news for retirees in certain states, as some will see smaller raises compared to others.
States with the Smallest COLA Raise in 2025
Although COLA is applied nationwide, its impact varies depending on the average Social Security benefits in different states. Retirees in states with lower average benefits will see smaller dollar-amount increases, even though the percentage increase remains the same. For 2025, the states expected to receive the smallest COLA raises include:
- Mississippi: $1,673 average monthly benefit
- Louisiana: $1,674 average monthly benefit
- New Mexico: $1,696 average monthly benefit
- District of Columbia: $1,696 average monthly benefit
- Arkansas: $1,717 average monthly benefit
- Alaska: $1,733 average monthly benefit
- Maine: $1,741 average monthly benefit
- Kentucky: $1,748 average monthly benefit
- Montana: $1,751 average monthly benefit
- California: $1,767 average monthly benefit
In these states, retirees will see smaller dollar increases in their Social Security checks next year, largely due to the lower base amounts of monthly benefits they already receive.
Why Some States See Smaller Raises
There are a few reasons why retirees in certain states will experience smaller COLA raises in 2025. The main factor is the average Social Security benefit amount. In states where retirees receive lower average benefits, even a percentage increase based on COLA results in a smaller raise in actual dollars. For instance, in Mississippi, where the average Social Security benefit is $1,673, a 3% COLA increase would only add around $50 to monthly benefits, compared to a higher dollar amount in states with larger average benefits.
Other factors, such as the cost of living and state-level taxes on Social Security benefits, can also affect how far those COLA increases go. Even though Mississippi, Louisiana, and other states might have lower living costs compared to places like California or New York, retirees in these states still struggle with rising prices, especially for essential goods and services.
The Impact on Retirees’ Budgets
For retirees in the states receiving the smallest COLA raises, 2025 could feel like a financial squeeze. While the percentage increase might sound good on paper, the smaller dollar amounts won’t make much of a difference when prices for food, utilities, and healthcare continue to climb. For someone living on $1,700 a month in Social Security benefits, a $50 increase may not be enough to cover even a month’s worth of groceries or a utility bill.
Healthcare costs are another significant concern. Many retirees in these states rely heavily on Medicare, but out-of-pocket expenses, such as co-pays and prescription drugs, continue to rise. Without a substantial COLA raise, covering these additional costs can become even more challenging.
What Can Retirees Do to Prepare?
Although retirees in these states can’t control the size of their COLA raise, there are a few steps they can take to better manage their finances in 2025:
- Budget carefully: Understanding where your money is going can help you make adjustments to cover rising costs. Creating a detailed budget can help you stretch your Social Security benefits further.
- Look into additional assistance: Some states offer programs to help seniors with food, housing, and healthcare expenses. It’s worth exploring whether you qualify for any additional assistance in your state.
- Consider delaying retirement: If you haven’t yet claimed Social Security benefits, you might want to consider delaying retirement. The longer you wait to claim benefits, the higher your monthly payments will be.
- Explore part-time work: For some retirees, taking on part-time work can provide a financial cushion. Even a small income stream can help offset the impact of a smaller COLA raise.
By planning ahead and exploring options like budgeting, additional assistance, or part-time work, retirees can find ways to manage their finances even with a smaller raise. Keeping an eye on future COLA adjustments and staying informed can also help retirees prepare for the challenges that lie ahead.
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