Current:Home > ScamsSocial Security 2025 COLA seen falling, leaving seniors struggling and paying more tax -FundPrime
Social Security 2025 COLA seen falling, leaving seniors struggling and paying more tax
Poinbank Exchange View
Date:2025-04-07 08:59:12
Older adults should expect a much smaller cost-of-living raise next year as inflation trends continue to slow.
Based on January's consumer price index (CPI) report on Tuesday, Social Security's cost-of-living-adjustment (COLA) in 2025 is forecast at 1.75%, according to analysis by The Senior Citizens League (TSCL), a nonpartisan, nonprofit seniors advocacy group.
That increase would be lower than this year's 3.2% adjustment and 2023's 8.7%, which was the largest jump in 40 years. And it would fall short of the Congressional Budget Office's (CBO) forecast of 2.5%.
CBO uses a different calculation than TSCL, "but clearly inflation rates are expected to fall from 2023 levels and the COLA for 2025 to be lower as well," said Mary Johnson, TSCL's Social Security and Medicare policy analyst who does these calculations each month.
"My estimates change month to month based on the most recent CPI data," she cautioned. "We still have eight months of data to come in and a lot could change."
How is COLA calculated?
Social Security Administration bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers (CPI-W) from July through September.
The index for urban wage earners largely reflects the broad index that the Labor Department releases each month, although it differs slightly. Last month, while the overall consumer price index rose 3.1%, the index for urban wage earners increased 2.9%.
How would a lower COLA affect older adults?
While slowing inflation is always welcomed, a lower COLA isn't. Seniors are still catching up from the soaring prices of the past few years, Johnson said. In December, CPI-W was 3.3%, slightly higher than the 3.2% COLA raise older adults received this year.
If COLA drops dramatically in 2025, "that’s not necessarily good news if prices for housing, hospital care, auto insurance, and other costs remain at today’s elevated levels,” Johnson said last month.
Social Security taxation is also on the rise
More Social Security recipients are paying taxes on their benefits, too.
The large 5.9% COLA increase in 2021, the 8.7% bump in 2023, and the 3.2% rise this year increased people's incomes. How much of your Social Security is taxed depends on how much income you have. Some states may also take a cut.
"The growing number of those getting hit by the tax is due to fixed income thresholds," Johnson said. "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."
This means that more older taxpayers become liable for the tax on Social Security benefits over time, and the portion of taxable benefits can increase as retirement income grows, she said.
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.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
veryGood! (92)
Related
- Are Instagram, Facebook and WhatsApp down? Meta says most issues resolved after outages
- Joseph Quinn still cringes over his 'stupid' interaction with Taylor Swift
- Judge issues ruling that protects a migrant shelter that Texas sought to close
- India wins cricket Twenty20 World Cup in exciting final against South Africa
- Romantasy reigns on spicy BookTok: Recommendations from the internet’s favorite genre
- Badminton Star Zhang Zhijie Dead At 17 After Collapsing On Court During Match
- New York Mets outfielder Brandon Nimmo faints in hotel room, cuts head
- 2 men were arrested on public road within Oprah’s Hawaii ranch. They’re suspected of illegal hunting
- Justice Department, Louisville reach deal after probe prompted by Breonna Taylor killing
- US Prisons and Jails Exposed to an Increasing Number of Hazardous Heat Days, Study Says
Ranking
- What do we know about the mysterious drones reported flying over New Jersey?
- Bold and beautiful: James Wood’s debut latest dividend from Nationals' Juan Soto deal
- Chet Hanks Reveals Cokeheads Advised Him to Chill Amid Addiction Battle
- In some Black communities, the line between barbershop and therapist's office blurs
- New Mexico governor seeks funding to recycle fracking water, expand preschool, treat mental health
- Utah State is firing football coach Blake Anderson, 2 other staffers after Title IX review
- Environmental groups decry attempt to delay shipping rules intended to save whales
- How do I advance my career to the executive level? Ask HR
Recommendation
Which apps offer encrypted messaging? How to switch and what to know after feds’ warning
2 men were arrested on public road within Oprah’s Hawaii ranch. They’re suspected of illegal hunting
Trump seeks to overturn criminal conviction, citing Supreme Court immunity decision
Small businesses could find filing for bankruptcy more difficult as government program expires
What do we know about the mysterious drones reported flying over New Jersey?
Sonic joins in on value menu movement: Cheeseburger, wraps, tots priced at $1.99
Supreme Court declines to review scope of Section 230 liability shield for internet companies
What restaurants are open on July 4th? Hours and details for Chick-fil-A, Starbucks, McDonald's, more