Income

Social Security 2025: The Good and Bad News Regarding Next Years COLA Increase 

Kristin Hitchcock

Published: October 6, 2024 10:21 am

24/7 Wall St. Key Takeaways:

• The 2025 COLA increase will raise Social Security payments, helping beneficiaries keep up with inflation. However, this may also lead to higher Medicare premiums and taxes for some individuals. 
• Recipients should plan ahead accordingly, budgeting for increased medical costs and taxes when necessary. 
• Also, read “The Next NVIDIA.”

In 2025, Social Security recipients will likely see another increase in their monthly benefits thanks to the Cost-of-Living Adjustment (COLA). This adjustment is designed to help Social Security keep up with inflation and prevent the rising cost of living from eating up seniors’ spending power. 

This larger check may seem like great news, but there are several potential downsides, too. 

Last year’s COLA increase led to higher Medicare premiums and even pushed some beneficiaries into higher tax brackets, for instance. Beneficiaries may need to prepare for a similar scenario in 2025. The official Social Security will be announced on Oct. 10th. 

In this article, we’ll explore the good and bad news surrounding the 2025 COLA increase:

The Good News About the 2025 COLA Increase

Here are some of the biggest benefits of the 2025 COLA increase:

• Larger Monthly Payments: One of the most obvious advantages of the 2025 COLA increase is the boost to monthly Social Security checks. Those receiving Social Security will see their monthly checks rise. This increase can provide a serious boost for those struggling with the cost of living necessities. 
• Helps Combat Inflation: The main point of COLA adjustments is to combat inflation. The yearly adjustment is based on certain inflation measures that attempt to predict the next year’s inflation numbers. As inflation continues to rise, this adjustment is seriously necessary. 

The main takeaway: 

The COLA increase means more money in the pockets of recipients, and that is almost always a good thing. 

The Bad News About the 2025 COLA Increase

That said, not everything is great about the 2025 COLA increase. There are several downsides, too:

• Higher Medicare Premium: While the COLA increase does mean a larger Social Security check, it could also trigger higher Medicare Part B premiums for beneficiaries. These premiums are often deducted straight from Social Security payments, reducing the amount of money beneficiaries receive each month. 
• Increased Tax Burden: Another downside is that a higher monthly benefit could push some beneficiaries into higher income brackets. It’s important to consider all of your income and plan your taxes accordingly, especially with significant COLA increases. 

These downsides affect individuals and may need to be planned for. However, there are some downsides for all Social Security recipients, as well.

The Impact on the Social Security Trust Fund

On top of the negatives for beneficiaries receiving Social Security, the 2025 COLA increase impacts the program as a whole. 

The 2025 COLA increase is very helpful for struggling beneficiaries. However, as monthly payments increase, there is growing concern about the program’s long-term sustainability. The Social Security Administration has already stated that the program is not sustainable in its current form.

Payouts will likely continue to be larger in the future as inflation grows. COLA can only increase payments, not decrease them. Therefore, payments can only go up from here. While that’s great for beneficiaries, it’s not so great for the program as a whole. 

For this reason, calls for Social Security reform have intensified. Policymakers are debating on addressing these financial challenges while ensuring current (and future) beneficiaries get what they need. 

Some common solutions include raising the retirement age, adjusting the tax cap, or altering how COLA works. 

What This Means for You

All this theory is great, but what does it mean for the average beneficiary? What should you do?

Firstly, you should be mindful that while COLA increases offer more money, it can mean more costs in other areas. Higher expenses may come from Medicare premiums and taxes, eating away at the increase. 

Even if you aren’t currently retired, you should expect Social Security payments to continue rising. Your payout could end up being a lot more than current beneficiaries are receiving. 

At the same time, you should also be aware that the Social Security program is likely to change soon. We don’t know exactly what reforms will be implemented, but the chance of reforms is rather high. 

You may wan to consider meeting with financial experts to learn how COLA increases will impact your financial situation specifically. You may need to plan for healthcare costs and navigate higher taxes, for instance.