Cost of Living Adjustment (COLA) Social Security Benefits The annual increase in COLA is perhaps one of the most important issues for retirees and Social Security recipients in general. The Senior Citizens League (TSCL), one of the largest nonpartisan senior citizens organizations in the United States, has provided updated estimates over the past few months. The latest estimates suggest that the COLA for 2025 will likely be in the range of 2.6% to 3%, which is significantly lower than what seniors were expecting given that the 2024 COLA was set at 3.2%. While a COLA increase is not always the best choice, there are several reasons why retirees may have second thoughts and accept the new increase.
Why should Social Security recipients not worry if the 2025 COLA is set at less than 3%?
The Senior Citizens League’s price growth forecast for May through September has been revised down due to the better-than-expected CPI data, with economists wary of a full decline in inflation, which rose 3.3% year-on-year. Senior League No major price changes are expected between May and September. However, the COLA for 2025 is likely to be less than 3%. Even if it is lower than last year, retirees should be happy with this outcome. This means that their actual purchasing power from Social Security income is likely to increase.
A high COLA isn’t always the best scenario
Higher than average inflation is indicated by a higher than average COLA. Additionally, inflation has taken a huge toll on home values. social securityAlready, the purchasing power of benefits is declining. For the average retiree who began receiving benefits in 2000, the cost of living has risen much faster than their monthly benefits. Their purchasing power has fallen by nearly 36 percent, according to the Senior Citizens League. High inflation in recent years has only exacerbated the problem.
of Social Security Administration Because Social Security calculates its annual COLA based on past cost-of-living increases, future inflation is unpredictable, leading seniors to save on their benefits during periods of high inflation. Still, Social Security recipients have benefited from low and stable inflation. For most of the time since 2010, the purchasing power of Social Security has increased, and the COLA was less than 3%. In the years when the COLA was less than 2%, purchasing power increased by a total of 13%. Seniors should be happy that their annual benefits are increasing over time.
The rising cost of living could have a negative impact on Social Security tax payments.
Taxation of social security income, Negative effects of high COLA relative to a retiree’s total assets. A measure of total income is used to determine how Social Security income is taxed. Adjusted gross income (AGI) plus tax-exempt interest income equals half of your total income, which is your Social Security benefit. Because your total income increases with your Social Security benefit, more of your benefit may be taxable. The following table shows how much of your Social Security benefit is considered taxable income depending on your filing status, total income, and other considerations.
| Taxable percentage of benefits | Combined income (individual) | Total income (couple) |
| 0% | Under $25,000 | Under $32,000 |
| Up to 50% | $25,000 to $34,000 | $32,000 to $44,000 |
| Up to 85% | Over $34,000 | Over $44,000 |
These thresholds may seem low, but they haven’t changed in over 30 years, and the regulations don’t take inflation into account. So even if your benefit increases, your taxable threshold stays fixed. As a result, the amount of tax you pay increases each year. If your COLA is low, you have more money to save. Social Security Benefits Without paying taxes.
