Americans have ranked inflation as their most pressing financial concern for the last three years, according to Gallup. So, Social Security recipients are eager for details about the cost-of-living adjustment (COLA) that will be applied to their benefits in 2025.
Specifics will be forthcoming once the Labor Department releases September inflation data on Thursday, Oct. 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 increase 2.5% next year, while the Congressional Budget Office expects benefits to increase 3.1%. Both forecasts imply the smallest COLA (in percentage points) for Social Security recipients since 2021. However, the median COLA (in dollars) will vary between states.
Read on to see the 10 states in which retired workers will receive the smallest COLAs in 2025.
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Retired workers in these 10 states will receive the smallest COLAs in 2025
The Social Security Administration periodically publishes anonymized benefit data to promote understanding among the general public and provide transparency into a government program funded by taxpayers. The chart below pulls information from the 2024 edition of the Annual Statistical Supplement.
Listed below are the 10 states (or districts) with the smallest median Social Security benefit for retired workers as of December 2023. The monthly payment amounts have been rounded to the nearest dollar.
Mississippi: $1,673
Louisiana: $1,674
New Mexico: $1,696
The District of Columbia: $1,696
Arkansas: $1,717
Alaska: $1,733
Maine: $1,741
Kentucky: $1,748
Montana: $1,751
California: $1,767
In 2025, retired workers in the 10 states listed above will get the smallest cost-of-living adjustments (COLAs) in terms of dollars. That's true because they receive the smallest median Social Security benefits, and COLAs equal the baseline benefit multiplied by the percent increase in inflation.
Here's an example: The median 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 payout. Likewise, the median 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 payout.
Why retired workers in certain states receive smaller Social Security benefits
Social Security benefits are based on lifetime income and claiming age. A formula is applied to the inflation-adjusted earnings from the 35-highest paid years of a worker's career to determine their primary insurance amount (PIA). The 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 claiming age. Workers that start Social Security before full retirement age receive a smaller benefit, meaning they get less than 100% of their PIA. And workers that start Social Security after full retirement age receive a larger benefit, meaning they get more than 100% of their PIA.
So, here is the question: "Why do retirees in certain states get smaller Social Security benefits?" The answer is a combination of random chance and lower median incomes. Geography factors into the equation, but only because the median income varies between states. Beyond that, where a retired worker chooses to live has no direct impact on their 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 the U.S. Census Bureau. Additionally, another two states -- Maine and Montana -- have median incomes below the national average.
The last three states or districts -- California, Washington D.C., and Alaska -- are oddballs. They have median incomes above the national average, which implies the median Social Security benefits should also exceed the national average. One explanation for the discrepancy is the exceptionally high cost of living in those places.
Specifically, California, Washington D.C., and Alaska have the second-, third-, and sixth-highest costs of living in the United States, respectively, according to the Missouri Economic Research and Information Center. Workers in those states may be more likely to relocate in retirement to save money. But the expenses associated with relocating may be prohibitive for low-earners. In that scenario, high-earners would arguably be more likely to move when they retire.
Beyond that, every other plausible explanation amounts to random chance.The $22,924 Social Security bonus most retirees completely overlook
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