The Senior Citizens League, a nonpartisan, non profit organization for seniors, projected a 1.75% cost-of-living adjustment (COLA) for Social Security in 2025 based on the January consumer price index report.
This anticipated increase is lower than the 3.2% adjustment seen this year and the significant 8.7% increase observed in 2023, which marked the largest jump in four decades.
Furthermore, it falls below the Congressional Budget Office’s forecast of 2.5%.
Mary Johnson, the league’s Social Security and Medicare policy analyst responsible for these calculations, noted that while the budget office employs a different calculation method, it is evident that inflation rates are expected to decline from the levels observed in 2023, resulting in a lower COLA for 2025.
Impact of Reduced COLA on Older Adults
While a decrease in inflation is generally viewed positively, a reduced COLA is not favorable. According to Johnson, seniors are still grappling with the aftermath of the substantial price increases observed in recent years.
In December, the urban wage earners index stood at 3.3%, slightly surpassing the 3.2% COLA adjustment received by older adults this year.
Last month, Johnson expressed concerns, stating that if COLA experiences a significant decrease in 2025, it might not be positive news, especially if prices for essential items such as housing, hospital care, and auto insurance continue to remain high.
Read more: SSDI Work Limits: Maximum Hours Allowed While On Disability
Increasing Taxation of Social Security Benefits
More Social Security beneficiaries are finding themselves subject to taxes on their benefits.
The recent increases in COLA, such as the 5.9% raise in 2021, the 8.7% surge in 2023, and the 3.2% uptick this year, have pushed many recipients’ incomes higher.
Whether or not your Social Security benefits are taxable depends on your total income, and some states may also impose taxes on these benefits.
“The expanding group of individuals impacted by this tax is a result of fixed-income thresholds,” noted Johnson.
Unlike federal income tax brackets, the income thresholds determining the taxation of Social Security benefits have not been adjusted for inflation since the tax was instituted in 1984.
Consequently, more retirees are finding themselves subject to this tax over time, and the taxable portion of their benefits can increase as their retirement income grows.
Johnson estimated that if the income thresholds for Social Security had been adjusted for inflation like federal tax brackets, the threshold for individual filers would exceed $75,250, and for joint filers, it would surpass $96,300 based on inflation through December 2023.
Read more: Navigating Social Security COLA: Tax Considerations For The Current Year
