The cost-of-living adjustment (COLA) for Social Security recipients in 2025 is projected to be as low as 1.4%, a significant drop from this year’s 3.2%, according to an analysis conducted by the Senior Citizens League.
Recent data for the consumer-price index for urban wage earners and clerical workers (CPI-W) in December indicates an inflation rate of 3.3%, slightly higher than the 3.2% COLA provided by Social Security for 2024.
However, this news may not be positive if the prices for housing, hospital care, auto insurance, and other expenses remain at their current elevated levels. Mary Johnson, a Social Security and Medicare policy analyst for the Senior Citizens League, expresses concern about the potential impact on recipients.
The COLA is determined based on the CPI-W, which places significant weight on expenses such as transportation, food, apparel, and other costs typically incurred by urban non-retirees.
It is important to note that the estimate for the 2025 COLA may change as the year progresses. The official announcement regarding next year’s COLA is expected in October.
Over the past two decades, the average COLA has been approximately 2.6%, according to the Senior Citizens League. While the COLA is not a raise, but rather a benefit adjustment reflecting inflation, it still offers important support to the approximately 67 million Social Security beneficiaries.
Statistics from the Social Security Administration reveal that half of the U.S. population aged 65 and older reside in households where at least 50% of their income comes from Social Security benefits. Additionally, about 25% of older households rely on Social Security for at least 90% of their income.
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Social Security: A Cautionary Outlook
As the 2025 cost-of-living adjustment (COLA) for Social Security recipients appears slim, concerns are arising regarding the potential impact of rising Medicare Part B premiums on retirees. Medicare Part B covers various medical services that are not included in Part A, such as physicians’ services, outpatient hospital services, home-health services, durable medical equipment, and more. Currently, Medicare Part B premiums stand at $174.70 per month for 2024, reflecting a 5.9% increase from the previous year’s $164.90.
In addition to premium hikes, another significant area of concern is the potential tax implications resulting from the substantial COLA of 8.7% in 2023. This increase could lead to more Social Security recipients being subject to taxes on their benefits during the upcoming tax season. Moreover, these higher taxes are anticipated to consume a larger portion of Social Security checks in 2024.
One reason behind this heightened tax burden on recipients is the fixed-income thresholds of the program. Unlike federal income-tax brackets, these thresholds determining whether Social Security benefits are taxable have remained unchanged since the introduction of the tax in 1984. As a result, an increasing number of recipients are being impacted, with no adjustment made to account for inflation over the years.
Looking further ahead, unless measures are taken to strengthen the trust fund supporting Social Security, it is projected to become insolvent by 2033. Such a scenario would necessitate a 23% reduction in benefits for both current and future recipients. This concerning forecast highlights the importance of addressing and resolving these issues promptly to safeguard the financial security of retirees.