Increase in Social Security COLA Estimate for 2025 Attributed to Inflation

Increase in Social Security COLA Estimate for 2025 Attributed to Inflation

The Senior Citizens League (SCL) has raised its estimate of the social security cost-of-living adjustment (COLA) for 2025 due to higher inflation, according to a recent press release. The March Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) came in at 3.5 percent, higher than previous projections based on February data. As a result, the long-term forecast for the COLA in 2025 has been adjusted to 2.6 percent, up from the previous estimate of 1.75 percent.

While the increase in the COLA may seem like good news for social security beneficiaries, there are concerns that it won’t be enough to counter elevated prices, putting them in a financially challenging position. The 2024 Senior Survey conducted by TSCL found that 43 percent of respondents experienced an increase in expenses of more than $185 per month last year. Additionally, 71 percent said their household costs rose more than the 3.2 percent COLA benefit they received in 2023, with food being cited as the leading contributor to rising expenses.

The financial situation for many seniors is tight, with 53 percent having to dip into their emergency savings. Shannon Benton, a director at TSCL, expressed concern that even with a 2.6 percent COLA increase, it wouldn’t be enough to make ends meet. She called it a pressing concern and urged Congress to address the issue.

However, it’s important to note that these COLA estimates are subject to change based on the latest inflation data. Mary Johnson, a social security and Medicare policy analyst at TSCL, warned back in January that the COLA for 2025 could drop to 1.4 percent if housing, hospital care, auto insurance, and other costs remained at their current elevated levels.

Another consequence of the higher COLA adjustments is that more social security beneficiaries may have to pay taxes. The increase in income could push them into taxable income brackets, as seen in a TSCL survey where 23 percent of participants who received social security for three years or more said they paid taxes for the first time in the 2023 tax season. TSCL expects this trend to continue into the 2024 tax season, with taxes taking a bigger portion of social security checks.

TSCL also highlighted the issue of older taxpayers being liable for taxes on their social security benefits over time. While federal income tax brackets have been adjusted, the income thresholds that subject social security to taxation have not been updated since 1984.

In response to taxes imposed on social security benefits, some states are taking action. The GOP-led House of Delegates in West Virginia passed a bill to phase out such payments over a three-year period, fully eliminating them by 2026. However, beneficiaries will still have to pay federal taxes on their social security receipts.

On the topic of overpayment by the Social Security Administration (SSA), a new policy has been implemented. Instead of withholding 100 percent of monthly benefits to recover an overpaid amount, the agency will now collect ten percent (or $10, whichever is greater) of the total monthly benefit. This change aims to provide relief to beneficiaries who have been overpaid by the SSA.

While these developments provide some relief to social security beneficiaries, there are concerns about the future of the social security system. The nonpartisan Congressional Budget Office (CBO) predicts that the two trust funds behind Social Security will be exhausted by 2034. This would result in a 25 percent reduction in benefits under the payable-benefits scenario. Some lawmakers, like Rep. Matt Gaetz, believe that boosting economic growth could address the insolvency crisis facing social security.

In conclusion, the increase in the social security COLA estimate for 2025 is attributed to higher inflation. However, concerns remain about the financial challenges faced by beneficiaries and the potential impact of taxes on their income. The issue of insolvency in the social security system also looms on the horizon. These factors highlight the need for Congress to address these pressing concerns and ensure the financial security of seniors.