For many retirees, Social Security is a financial lifeline. As the cost of living rises, retirees look to their Social Security benefits to keep pace with inflation. The annual cost-of-living adjustment (COLA) helps ensure that these benefits maintain their purchasing power as prices increase. However, retirees in certain states may receive smaller dollar increases in 2025, leaving them feeling the pinch even more as inflation continues to take its toll.
The Social Security Administration (SSA) will announce the 2025 COLA in October, after the Labor Department releases the latest inflation data. While exact numbers are still pending, early projections from The Senior Citizens League estimate a modest 2.5% increase, while the Congressional Budget Office predicts a 3.1% rise. Either way, it looks like retirees could be seeing one of the smallest COLA increases in several years.
While a slight COLA might not seem like a big deal, it can have significant implications depending on where you live. Let’s take a closer look at why retirees in certain states will experience smaller raises and what this means for their financial futures.
The States with the Smallest Social Security Increases in 2025
Not all Social Security recipients will experience the same boost in their benefits, even though the percentage increase will be consistent across the board. The actual dollar amount varies because the COLA is applied as a percentage of your current benefit. So, if you already receive a smaller Social Security check, the raise you get will be smaller in dollar terms as well.
Here are the 10 states where retirees are projected to receive the smallest Social Security COLA increases in 2025, based on current median benefit amounts:
- Mississippi: $1,673
- Louisiana: $1,674
- New Mexico: $1,696
- District of Columbia: $1,696
- Arkansas: $1,717
- Alaska: $1,733
- Maine: $1,741
- Kentucky: $1,748
- Montana: $1,751
- California: $1,767
The median monthly benefit in these states is on the lower end of the national scale, which means that even a 2.5% or 3.1% COLA will result in smaller dollar increases. For instance, in Mississippi, where the median Social Security benefit is $1,673, a 2.5% increase would translate to an additional $41.80 per month. In contrast, retirees in New Jersey, where the median benefit is $2,100, would see an increase of $52.50 under the same 2.5% COLA.
Why Some Retirees Receive Lower Social Security Benefits
Social Security benefits are determined by a formula that takes into account a worker’s highest 35 years of earnings. The benefits are also adjusted based on when the recipient starts claiming them. If you claim Social Security before reaching full retirement age (which is currently 67 for those born after 1960), your monthly benefit will be permanently reduced. Conversely, waiting until after full retirement age increases your benefit.
But why do retirees in certain states consistently receive lower benefits? The answer lies primarily in the income levels within those states. In states like Mississippi, Louisiana, and New Mexico, median incomes are lower than the national average. Social Security benefits are tied to lifetime earnings, so workers in these states generally have lower benefit amounts.
In fact, five of the states with the smallest Social Security benefits—Mississippi, Louisiana, New Mexico, Arkansas, and Kentucky—are also among the states with the lowest median incomes, according to the U.S. Census Bureau. Other states, like Maine and Montana, also have median incomes below the national average.
However, there are some exceptions. California, the District of Columbia, and Alaska have higher-than-average median incomes, but retirees in these states still see smaller Social Security benefits. This anomaly is likely due to the high cost of living in these areas. In places where housing, healthcare, and other essentials are more expensive, retirees may be more inclined to move to more affordable locations when they retire, skewing the data. Additionally, those with higher earnings are better positioned to make this move, leaving behind a group of retirees with lower benefits.
What Does This Mean for Retirees?
For retirees living in states where the median Social Security benefit is lower, a modest COLA increase like the one expected for 2025 may feel disappointing. While inflation continues to push the cost of essentials like groceries, utilities, and healthcare higher, these smaller raises might not fully cover the increased expenses.
Retirees in these states may need to rely more on personal savings, part-time work, or other forms of income to make ends meet. Social Security was never designed to replace 100% of a person’s income in retirement, but with prices rising faster than benefits, it’s becoming harder for many to bridge the gap.
If you’re living in one of these states and worried about how your benefits will hold up, it might be worth exploring additional ways to stretch your retirement budget. Consider looking for discounts or benefits available to seniors, whether through local programs or federal initiatives. Planning ahead and budgeting carefully can also make a significant difference.
Looking Ahead: What Can Retirees Do?
As 2025 approaches, retirees can expect more clarity on exactly how much their Social Security benefits will increase. However, regardless of where you live, it’s essential to stay proactive about your financial health. If you’re nearing retirement, consider the following strategies to maximize your Social Security benefits:
- Delay Claiming Benefits: If possible, wait until you reach full retirement age, or even beyond, to start claiming your Social Security benefits. This will ensure you receive a higher monthly check for the rest of your life.
- Work Longer: Increasing your income in your later working years can raise your benefit, particularly if you have low-earning years in your 35-year average.
- Relocate if Feasible: If you live in a state with a high cost of living, consider relocating to a more affordable area where your Social Security benefits can go further.
By understanding how Social Security works and planning accordingly, retirees can make the most of the benefits they’ve earned. Even in states with lower median benefits, there are ways to secure a more comfortable and stable retirement.
