Social Security’s COLA 2025: Retirees in these 10 states will get the smallest raises next year

According to Gallup, Americans have ranked inflation as their most pressing financial concern for the past three years. So Social Security recipients are eager for details about the cost-of-living adjustment (COLA) that will apply to their benefits in 2025.

Specifications will be available once the Labor Department releases September inflation data on Thursday, October 10 at 8:30 am ET. Shortly thereafter, the Social Security Administration will issue a press release detailing the official COLA for 2025.

The Senior Citizens League estimates benefits will rise 2.5 percent next year, while the Congressional Budget Office expects benefits to rise 3.1 percent. Both forecasts imply the lowest COLA (in percentage points) for Social Security recipients in 2021. However, the median COLA (in dollars) will vary among states.

Read on to see the 10 states where retired workers will receive the lowest COLAs in 2025.

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Retired workers in these 10 states will receive the lowest COLAs in 2025

The Social Security Administration periodically publishes anonymized benefit data to promote public understanding and provide transparency in a taxpayer-funded government program. The chart below extracts information from the 2024 edition Annual statistical supplement.

Listed below are the 10 states (or districts) with the lowest average Social Security benefits for retired workers as of December 2023. Monthly payment amounts have been rounded to the nearest dollar.

• Mississippi: $1,673
• Louisiana: $1,674
• New Mexico: $1,696
• District of Columbia: $1,696
• Arkansas: $1,717
• Alaska: $1,733
• Tomorrow: $1,741
• Kentucky: $1,748
• Montana: $1,751
• California: $1,767

In 2025, retired workers in the 10 states listed above will receive the lowest cost of living adjustments (COLAs) in dollar terms. This is true because they receive the lowest median Social Security benefits, and the COLA is equal to the basic benefit multiplied by the percentage increase in inflation.

Here’s an example: The average retired worker benefit is $1,673 per month in Mississippi, the lowest in the United States, so a 2.5% COLA would add about $41.80 to the monthly pay. Also, the average retired worker benefit is $2,100 in New Jersey, the highest in the United States, so the same 2.5% COLA would add $52.50 to the monthly payment.

Why retired workers in some states receive lower Social Security benefits

Social Security benefits are based on lifetime earnings and claim age. A formula is applied to the inflation-adjusted earnings of the highest paying 35 years of a worker’s career to determine the Primary Insurance Amount (PIA). PIA is the benefit a worker will receive if they claim Social Security at full retirement age, which is 67 for anyone born in 1960 or later.

The PIA is adjusted based on the age of the claim. Workers who start Social Security before full retirement age receive a lower benefit, meaning they receive less than 100% of PIA. And workers who start Social Security after full retirement age get a larger benefit, meaning they get more than 100 percent of their PIA.

So here’s the question: “Why do retirees in certain states receive lower Social Security benefits?” The answer is a combination of random chance and lower average incomes. Geography factors into the equation, but only because median income varies across states. Furthermore, where a retired worker chooses to live does not directly impact his or her Social Security benefit.

To elaborate, five of the 10 states with the lowest median Social Security benefits — Mississippi, Louisiana, New Mexico, Arkansas and Kentucky — also rank among the 10 states with the lowest median incomes, according to US Census Bureau. In addition, two other states—Maine and Montana—have median incomes below the national average.

The last three states or districts — California, Washington DC, and Alaska — are odd. They have median incomes above the national average, which means median Social Security benefits should also be above the national average. One explanation for the discrepancy is the exceptionally high cost of living in those places.

Specifically, California, Washington DC and Alaska have the second, third and sixth highest cost of living in the United States, respectively, according to the Missouri Center for Economic Research and Information. Workers in those states may be more likely to move in retirement to save money. But the expenses associated with relocation can be prohibitive for those on low incomes. In this scenario, high earners would likely be more likely to move when they retire.

Beyond that, any other plausible explanation amounts to random chance.