It’s official: Social Security benefits will get a 2.5% cost-of-living adjustment (COLA) in 2025, the smallest percentage increase in payments since 2021. That means the average retiree will receive $49 more per month, so the monthly benefit increases to $1,967.

It’s important to note that Social Security’s annual COLAs protect the purchasing power of benefits by ensuring that payments increase at the same rate as inflation. All retired workers will see an identical increase in their Social Security benefits next year, but those in some states will receive higher COLAs, measured in nominal dollars.

Read on to learn the 10 states where retiree benefits will increase the most dramatically.

Image source: Getty Images.

Social Security benefits for retirees depend on lifetime income

Social Security benefits for retired workers depend on lifetime income and claiming age. First, the inflation-adjusted income of the 35 highest-paid work years is calculated using a formula to determine the primary insurance amount (PIA) for each worker. 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 late requests. Workers who claim Social Security before FRA receive a reduced benefit, less than 100% of their PIA. And workers who claim Social Security after FRA earn delayed retirement credits that increase their benefits, meaning they receive more than 100% of their PIA. As a caveat, these credits stop accumulating at age 70, so it never makes sense to claim them later.

It’s important to note that state of residence is never factored into the equation, at least not directly. However, this indirectly impacts Social Security payments because median income varies from state to state. Therefore, the median retiree benefit also varies from state to state.

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

The Social Security Administration publishes an annual statistical supplement that breaks down benefits data by categories such as age, gender and geography. The list below is from the 2024 Statistical Supplement. It shows the 10 states with the highest median monthly retiree 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 base benefits. To be clear, I’m talking about the Social Security 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 the current payment.

For example, while all Social Security beneficiaries in New Jersey and Massachusetts will receive a 2.5% COLA next year, the median increase will be $52.50 per month for New Jersey retirees ( that is to say $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 retiree benefit varies by state

To summarize, retired workers with higher base benefits will receive higher nominal dollar COLAs next year. So the next logical question is why retirees in some states enjoy higher median benefits. There are several answers, but the most important is that 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 median incomes higher than the national average, according to the U.S. Census Bureau.

Coincidence is another reason why retired workers in some states receive larger Social Security benefits. Some people choose to move when they retire, in which case there is no relationship between their benefit and the median income in their state of residence. This explains why Michigan and Indiana rank among the top 10 states in median Social Security benefits, while simultaneously ranking below the national average in median income.

This also explains why California and Washington, DC, rank among the top 10 states/districts in terms of median income, while simultaneously ranking among 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 relocate in retirement.