Investing

Social Security 2025: Where Will COLA Bring Social Security Payments Next Year?

Chris MacDonald

Published: September 24, 2024 11:12 am

For retirees, the annual cost of living adjustment (COLA) to social security payments is a very hot topic, and one that certainly is worth paying attention to. Every year, the Social Security Administration (SSA) suggests an inflation-linked increase to social security for seniors. Using a so-called COLA indicator, various factors including the CPI report are used to calculate the rise in payments made to seniors on a year-over-year basis.

Given the fact that the CPI has been rising at a much slower rate (which is great for the fight for lower interest rates, but not so great for seniors), many expect a more modest benefit increase this coming year. That said, there is some uncertainty with respect to the exact number that will be announced, as the final COLA figure for 2025 will be based on CPI-W changes from July – September, which will come out in October.

For those curious as to where next year’s COLA adjustment will come in at, let’s dive into the information at hand what the experts suggest could be on tap for 2025.

Key Points About This Article:

• Retirees who are reliant on social security payments pay extra attention to the newsflow in October, when the cost of living adjustment (COLA) is announced for the following year.
• Here’s where the market and experts believe next year’s COLA will come in at, and what seniors may want to make of this more modest increase.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Projected Cost of Living Adjustment for 2025

Given the fact that July – September inflation data are used to calculate this increase, seniors are likely to see a lower increase than they may have if earlier year data was used for the calculation. While that’s disappointing for many, the 2023 outsized COLA increase of 8.7% certainly helped out millions of households traverse higher inflationary pressures for their essential goods.

COLA and Inflation

The COLA is based on third-quarter CPI-W data, and retirees’ net benefits may be impacted by taxes and Medicare Part B premiums. Up to 85% of Social Security benefits can be taxed based on combined income, which includes half of the benefits, total adjusted gross income, and nontaxable interest. As these thresholds remain unchanged, more beneficiaries may face taxes over time. Former President Trump has proposed eliminating these taxes as part of his campaign, aiming to “help seniors on fixed incomes” by removing taxes on Social Security benefits.

We’ll have to see how the Harris administration potentially responds to these moves, given how important the senior population is politically. The potential for individuals with a combined income between $25,000 and $34,000, or $32,000 and $44,000 for married couples to potentially face taxes on up to 50% of their benefits is likely to continue to be a hot-button issue, as well as how inflation is ultimately calculated. 

What This Means for Retirees

Issues around how the trust supporting these SSA distributions is funded remain, and there are plenty of issues with respect to a funding gap that need to be sorted by future administrations. For decades, these issues have been kicked down the road, though with 10,000 baby boomers aging into retirement on a daily basis, these discussions are likely going to need to happen sooner.

For 2025, seniors can expect a COLA of around 2.5%, give or take a few basis points. That’s not much.