Early projections for the cost-of-living adjustment for Social Security in 2025 show a decline from this year’s 3.2% and significantly lower than 8.7% from the year before.
The Senior Citizens League’s projections put the 2025 increase at 1.75%. The increase is based on the latest figures from the January Consumer Price Index for Urban Wage Warners and Clerical Workers, which came in at 2.9%.
TSCL’s COLA changes month to month based on the most recent CPI data and will likely change significantly before the final determination is made based off figures in the third quarter of the year – July, August and September – when compared to the same period a year before.
“In other words, there are another eight months of data to come in, and a lot could change,” TSCL said in a statement.
TSCL’s estimate is lower than that of the Congressional Budget Office’s estimate which projects the COLA at 2.5%. CBO uses a different methodology than TSCL’s, the group explained, but “clearly, inflation rates are expected to fall from 2023 levels and the COLA for 2025 will also be lower.”
If the 1.75% forecast is accurate, it will be the minimum increase since 2020 when the COLA was 1.3%. It increased to 5.9% in 2021 before increasing to 8.7% in 2022, the biggest increase since 1981’s 11.2%.
How is COLA calculated?
The COLA is calculated by the Social Security Administration annually using the average annual increase in the consumer price index for urban wage earners and clerical workers (CPI-W) from July to September.
The index for urban wage earners is largely the same as the broad index the Labor Department releases each month, but it has some differences. Despite the overall consumer price index rising by 3.2% last month, the index for urban wage earners increased by 3.1%.
What was 2024’s COLA?
Older adults received a 3.2% bump in their Social Security checks at the beginning of the year to help them keep pace with inflation. That increased the average monthly retiree benefit by $59 per month.
Did the 2024 COLA bump help seniors catch up to inflation?
No, according to TSCL’s survey of 815 older adults starting in January. Seniors are still catching up from the soaring prices of the past few years, Johnson said
Ninety-three percent of survey respondents said their household expenses increased by more than $59 per month in 2023, according to the survey. Forty-three percent said that monthly household expenses rose more than $185.
Social Security taxation is also on the rise
More Social Security recipients are paying taxes on their benefits, too.
The 5.9% COLA increase in 2021, the 8.7% bump in 2023, and the 3.2% rise this year increased people’s incomes. Your income determines how much of your Social Security is taxed. Some states may also take a cut.
“Unlike federal income tax brackets, the income thresholds that subject Social Security benefits to taxation have never been adjusted for inflation since the tax became effective in 1984,” Johnson said.
The tax on Social Security benefits becomes a liability for more older taxpayers as time goes on, and the percentage of taxable benefits can increase as retirement income increases, as she mentioned.
If income thresholds for Social Security had been adjusted for inflation like federal tax brackets, the individual filing status level of $25,000 would be over $75,250, and the joint filer level would be more than $96,300 based on inflation through December 2023, she estimated.
