The Social Security recipients are encouraged to embrace for the upcoming cost-of-living adjustment (COLA), set to be announced at the end of the current year, since it’s projected to be the smallest in decades, as warned by the Senior Citizens League’s most recent analysis.
Social Security recipients in 2025 could plummet to as low as 1.4%, a stark decline from the 3.2% recorded in the current year. If this estimate holds true, it would mark the lowest COLA level since 2020, raising apprehensions among the nation’s retirees.
A Smaller Increase for Social Security Beneficiaries and Retirees
The analysis, based on December’s inflation reading for the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), revealed an inflation rate of 3.3%. This figure slightly surpasses the 3.2% COLA implemented for Social Security in 2024. Mary Johnson, a Social Security and Medicare policy analyst at the Senior Citizens League, expressed concerns about the situation, stating, “That’s not necessarily good news if prices for housing, hospital care, auto insurance, and other costs remain at today’s elevated levels.”
The COLA is intricately tied to the CPI-W, which places heavier emphasis on costs for transportation, food, apparel, and other expenses typically incurred by urban non-retirees. The estimate for the 2025 COLA could fluctuate as the year progresses, with the official announcement expected in October.
Over the last two decades, the average COLA has hovered around 2.6%, serving as a crucial benefit adjustment that reflects inflation without constituting a raise. Despite its nuances, this adjustment aids approximately 67 million Social Security beneficiaries. Notably, half of the U.S. population aged 65 and older reside in households receiving at least 50% of their income from Social Security benefits, with around 25% relying on it for 90% or more of their income, according to the Social Security Administration.
An Unenthusiastic Outlook for Social Security Benefits in 2025
Mary Johnson warned that the meager COLA forecast for 2025 might face further erosion due to escalating Medicare Part B premiums. These premiums, covering various medical services, are automatically deducted from a retiree’s Social Security check. The Medicare Part B premium for 2024 stands at $174.70 per month, reflecting a 5.9% increase from $164.90 in 2023.
Furthermore, Johnson cautioned that the substantial 2023 COLA of 8.7% could impact Social Security recipients’ taxes during this year’s tax season. “We expect the higher Social Security income will not only cause more Social Security recipients to pay taxes on their benefits this tax season, but taxes are taking a bigger portion of Social Security checks in 2024,” she said.
The heightened number of recipients affected by taxes is attributed to the fixed-income thresholds of the program. Unlike federal income-tax brackets, the income thresholds determining the taxation of Social Security benefits have not been adjusted for inflation since the tax’s inception in 1984, according to Johnson.