Good News for Retirees: 2025 Social Security Increase on the Horizon

Juilia Ruskin
5 Min Read

There’s some good news on the horizon for retirees in 2025. Social Security benefits might see an increase, thanks to the cost-of-living adjustment (COLA). This adjustment helps ensure that Social Security and Supplemental Security Income (SSI) benefits keep up with inflation. While the increase might not be as high as some expected, it could still be beneficial in the long run.

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What is COLA?

COLA stands for cost-of-living adjustment. The Social Security Administration (SSA) uses COLA to adjust Social Security and SSI benefits based on inflation. This helps maintain the purchasing power of these benefits. The adjustment is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures changes in prices for goods and services.

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How is COLA Determined?

The COLA is calculated by the Department of Labor’s Bureau of Labor Statistics. They look at the average inflation rate during the third quarter (July, August, and September) of the current year and compare it to the same period from the previous year. This percentage change determines the COLA for the following year.

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2025 COLA Projections

The Senior Citizens League (SCL) recently revised its estimates for the 2025 COLA. They now predict a 2.57% increase in Social Security payments for seniors, lower than the 2.66% projected in May and the 3.20% increase seen in the first six months of 2024. Although this might seem like a small increase, it could be more beneficial than a higher COLA in the long run.

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The Cost of Living Adjustment Paradox

A lower COLA might actually be good news. According to an analysis by The Motley Fool, a financial and investment advisory company, a higher COLA usually means higher inflation, which can erode the value of Social Security benefits. Low and stable inflation helps maintain the purchasing power of these benefits. Since 2010, when the COLA has been below 3%, the purchasing power of Social Security has improved by a cumulative 13%.

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Taxation and Social Security Benefits

Another downside to a high COLA is the increased taxation on Social Security benefits. As benefits increase, so does the combined income, which can push beneficiaries into a higher tax bracket. This means more of their benefits might be subject to taxes, negating some of the COLA increase.

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Final COLA Announcement

The final COLA for 2025 will be announced in mid-October. It will be based on the average inflation rate during the third quarter of 2024. Until then, any estimates are just that—estimates. Retirees should wait for the official announcement before getting too excited or disappointed.

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While the COLA for 2025 might be lower than expected, it could be more beneficial in the long term. Low and stable inflation helps maintain the purchasing power of Social Security benefits. Retirees should stay informed and wait for the official COLA announcement in October.

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1. What is COLA?

COLA stands for cost-of-living adjustment. It helps ensure Social Security and SSI benefits keep up with inflation.

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2. How is COLA calculated?

The COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and is based on the average inflation rate during the third quarter of the current year.

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3. What is the projected COLA increase for 2025?

The Senior Citizens League predicts a 2.57% increase in Social Security payments for 2025.

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4. Why might a lower COLA be beneficial?

A lower COLA can mean lower inflation, which helps maintain the purchasing power of Social Security benefits over time.

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5. When will the final COLA for 2025 be announced?

The final COLA for 2025 will be announced in mid-October, based on the average inflation rate during the third quarter of 2024.

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An up-and-coming tax attorney passionate about educating readers on tax planning and mitigation strategies. Juilia articles offer practical advice and actionable tips to help individuals and businesses navigate the intricacies of tax law with confidence.
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