It's official: Social Security benefits will receive a 2.5% cost-of-living adjustment (COLA) in 2025, the smallest percent increase in payments since 2021. That means the average retired worker will receive an additional $49 per month, such that the average monthly benefit increases to $1,967.
Importantly, Social Security's annual COLAs protect the buying power of benefits by ensuring payouts increase at the same pace as inflation. All retired workers will see an identical percent increase in their Social Security benefits next year, but those in some states will receive larger COLAs as measured in nominal dollars.
Read on to see the 10 states where retired-worker benefits will increase most substantially.
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Social Security benefits for retired workers depend on lifetime income
Social Security benefits for retired workers depend on lifetime income and claiming age. First, inflation-adjusted income from the 35 highest-paid years of work is run through a formula to determine the primary insurance amount (PIA) for each worker. The PIA is the benefit a retired worker will receive if they claim Social Security at full retirement age (FRA).
Second, the PIA is adjusted to account for early and delayed claims. Workers who claim Social Security before FRA get a reduced benefit, meaning less than 100% of their PIA. And workers who claim Social Security after FRA earn delayed retirement credits that increase their benefit, meaning they get more than 100% of their PIA. As a caveat, those credits stop accruing at age 70, so it never makes sense to claim later.
Importantly, state of residence never factors into the equation, at least not directly. However, it does impact Social Security payments indirectly because the median income varies from state to state. Therefore, the median retired-worker benefit also varies from state to state.
Retired workers 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 across categories like age, sex, and geography. The list below comes from the 2024 statistical supplement. It shows the 10 states with the highest median monthly retired-worker benefit as of December 2023.
- New Jersey: $2,100
- Connecticut: $2,084
- Delaware: $2,064
- New Hampshire: $2,039
- Maryland: $2,008
- Michigan: $2,004
- Washington: $1,992
- Minnesota: $1,982
- Indiana: $1,952
- Massachusetts: $1,946
Retired workers living in the 10 states listed above will receive the largest nominal-dollar COLAs in 2025 simply because they already receive the largest baseline benefits. To be clear, I am discussing Social Security's COLA in nominal dollars, not percentage points. The percent increase will be identical for all beneficiaries, but the increase in nominal dollars will be proportionate to the current payout.
For example, while all Social Security recipients in New Jersey and Massachusetts will receive a 2.5% COLA next year, the median increase will be $52.50 per month for retirees in New Jersey (i.e., $2,100 multiplied by 2.5%) and $48.65 per month for retirees in Massachusetts (i.e., $1,946 multiplied by 2.5%).
Why the median retired-worker benefit varies between states
To summarize, retired workers with larger baseline benefits will receive larger nominal-dollar COLAs next year. So, the next logical question is why retirees in certain states have larger median benefits. There are several answers, but the most important one is those states tend to have higher median incomes.
Indeed, five states listed above -- New Jersey, New Hampshire, Maryland, Washington, and Massachusetts -- rank among the top 10 states in terms of median income. And three states -- Connecticut, Delaware, and Minnesota -- have a median income above the national average, according to the U.S. Census Bureau.
Random chance is another reason retired workers in certain states receive larger Social Security benefits. Some people choose to relocate when they retire, in which case there is no relationship between their benefit and the median income in their state of residence. That explains why Michigan and Indiana rank among the top 10 states in terms of the median Social Security benefit, while simultaneously ranking below the national average in terms of median income.
It also explains why California and Washington, D.C., rank among the top 10 states/districts in terms of median income, while simultaneously ranking in the bottom 10 states/districts in terms of median Social Security benefits. Both geographies have a very high cost of living, so workers who can afford to relocate may choose to move away when they retire.
