Social Security’s 2025 COLA is official: Retirees in these 10 states will get the biggest increases

It’s official: Social Security benefits will receive a 2.5% cost of living adjustment (COLA) in 2025, the smallest percentage increase in benefits since 2021. This means the average retired worker will receive an additional $49 per month, increasing the average monthly benefit to $1,967.

It’s important to note that Social Security’s annual COLAs protect the purchasing power of benefits by ensuring benefits increase at the same rate as inflation. All retirees will see the same percentage increase in their Social Security benefits next year, but in some states they will receive larger COLAs, measured in nominal dollars.

Read on to see the 10 states that will increase retiree benefits the most.

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Social Security benefits for retirees depend on lifetime income

Social Security benefits for retired workers are based on lifetime earnings and age of claim. First, inflation-adjusted earnings for the 35 highest-paid years of work are calculated using a formula to determine the primary insurance amount (PIA) for each employee. PIA is the benefit a retired worker will receive if he or she files for Social Security after reaching Full Retirement Age (FRA).

Second, the PIA is adjusted to account for early and deferred claims. Workers who file for Social Security before FRA receive a reduced benefit, which means less than 100% of their PIA. And workers who claim Social Security after FRA receive deferred retirement credits that increase their benefit, meaning they receive more than 100% of their PIA. As a word of caution, these credits stop accruing at age 70, so there’s no point in claiming them later.

It’s important to note that location is never factored into the equation, at least not directly. However, it affects Social Security benefits indirectly because average income varies from state to state. Thus, the median benefit for retirees also varies from state to state.

Retirees in These 10 States Will Receive the Largest COLAs in 2025

The Social Security Administration publishes an annual statistical supplement that breaks down benefit data by categories such as age, gender and geographic location. The list below is taken from the 2024 Statistical Supplement. It shows the 10 states with the highest average monthly benefits for retirees as of December 2023.

• New Jersey: US$2100
• Connecticut: US$2084
• Delaware: US$2064
• New Hampshire: US$2039
• Maryland: 2008 US dollars
• Michigan: 2004 US dollars
• Washington: 1992 US dollars
• Minnesota: 1982 US dollars
• Indiana: 1952 US dollars
• Massachusetts: 1946 US dollars

Retirees living in the 10 states listed above will receive the largest nominal COLAs in 2025 simply because they already receive the largest base benefits. To be clear, I’m talking about Social Security’s COLA in nominal dollars, not percentage points. The percentage increase will be the same for all beneficiaries, but the increase in nominal dollars will be proportional to current payments.

For example, while all Social Security recipients in New Jersey and Massachusetts will receive a 2.5% COLA next year, the average increase will be $52.50 per month for retirees in New Jersey (i.e., $2,100 times by 2.5%) and $48.65 per month for pensioners. in Massachusetts (i.e. $1,946 times 2.5%).

Why does the median retiree benefit vary across states?

To summarize, retirees with larger base benefits will receive COLAs in larger nominal dollars next year. So the next logical question is why retirees in some states have higher average benefits. There are several answers, but the most important one is that these states tend to have higher average incomes.

Indeed, the five states listed above—New Jersey, New Hampshire, Maryland, Washington, and Massachusetts—rank among the top 10 states with the highest average income. Three states—Connecticut, Delaware and Minnesota—have median incomes above the national average, according to the U.S. Census Bureau.

Random chance is another reason why retirees in some states receive larger Social Security benefits. Some people decide to move after retirement, in which case there is no connection between their benefit and the average income in their country of residence. This explains why Michigan and Indiana rank in the top 10 states for average Social Security benefits, but also rank below the national average for median income.

This also explains why California and Washington, D.C., rank in the top 10 states/districts for median income while also ranking in the bottom 10 states/districts for median Social Security benefits. Both regions have a very high cost of living, so workers who can afford to move may decide to leave when they retire.