(Reuters) - U.S. retirees will receive a 2.5 percent increase in their Social Security checks in 2025, the Social Security Administration said on Thursday, translating into an average of roughly $50 per month more starting in January.

The cost-of-living adjustment, also known as COLA, is tied to inflation moves. The rate for 2024 was 3.2%, reflecting higher inflation at the time.

The rate is determined by averaging together third-quarter inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

It is the smallest annual raise since 2020, when retirees received a 1.3% increase. The rate then shot up as inflation soared during the COVID-19 pandemic before the pace of price increases dissipated this year to more normalized, although still elevated, levels. The Federal Reserve targets a 2% inflation rate.

The same 2.5 percent increase will be applied to those receiving Supplemental Security Income benefits, which is designed for the elderly and people with disabilities.

In total, more than 72.5 million people will benefit from the increase, the Social Security Administration said in a statement.

In January, the maximum amount of earnings subject to the Social Security tax is set to rise to $176,100 from $168,600, the agency also said.