Millions of Americans depend on their Social Security payments to help them pay for the things they need to live. The cost of living keeps going up, mostly because of inflation.
This makes these payments even more important for many people, especially those who are on fixed incomes. Over the past few years, inflation has affected almost every part of life and made it harder for people all over the country to stick to their budgets.
For the most defenceless people, like seniors and retirees, this financial stress is especially hard, so it is important to find a way to ease the pain.
In answer to inflation, the Social Security Administration (SSA) changes benefit payments every year. These changes are made public every October. The changes are based on inflation figures from the third quarter of the fiscal year.
They are called the Cost of Living Adjustment (COLA). These changes make sure that seniors’ benefits keep up with the rising cost of living as inflation rises.
That is why inflation affects not only bigger economic policies, like those set by the Federal Reserve, but it also has a direct effect on seniors’ monthly income.
The predictions for the 2025 COLA for Social Security
A lot of market experts, like analyst Mary Johnson, think that Social Security payments will go up by 2.5% in 2025. This comes after a 3.2% rise in 2024 and a much bigger 8.7% change in 2023, when inflation was highest.
These changes showed how inflation is still affecting daily costs, though the expected rise in 2025 will be smaller than in previous years because inflation rates are slowly going down.
The recent trend of lower inflation is one of the main things that will affect the size of the COLA in 2025. According to the most recent inflation data, consumer price inflation in the U.S. is around 2.5%, which is close to the 2% goal set by the Federal Reserve.
The Fed does not think they will reach this goal until 2026, but the slower rate of price increases could make it harder to make future COLA changes.
If inflation keeps going down, some experts say that future Social Security increases could be even smaller than the expected 2.5%. This means that retirees may not see a big increase in their monthly checks for a while.
Still, inflationary forces are hard to predict. Even though a lot of experts think that inflation will keep going down over the next year, these forces could come back at any time.
It is been said a lot in the news that customer demand is still high, which could mean that prices go up again. However, most experts agree that inflation will stay low, which will mean that future COLA adjustments will be less significant.
Other confirmed changes in Social Security
Besides changes to COLA, there are other possible changes to Social Security that could happen in 2025. One of these ideas is to raise the full retirement age (FRA).
The Republican Study Committee (RSC) released its budget plan for fiscal year 2025 in March. It includes big cuts to Social Security. The idea to raise the FRA from 67 to 69 is one of the most interesting parts of this plan.
Many Americans depend on Social Security as their main source of income in retirement would see their payments go down because of this change.
The idea of raising the retirement age is controversial and not liked by most people. However, some conservative groups, like the Heritage Foundation, which supports the Project 2025 plan, have backed it.
If this idea were to become popular, it could delay the FRA for many people, which could mess up the retirement plans of millions of Americans.
But a lot of this relies on how politics work and how the 2024 presidential election turns out. It is possible that these changes will happen more often if Donald Trump wins the race.
The pay cap for Social Security taxes is another part of Social Security that might change next year. At the moment, workers need to earn 40 credits in order to get retirement benefits, and they can only get four points per year.
The exact details of how these credit standards might change have not been decided yet, but people who are retired or close to retirement will need to keep a close eye on this.
These changes might not have a big effect on most people, but they might change how total earnings are used to figure out retirement benefits.
Also, the maximum amount of income that is taxed for payroll purposes will likely go up from $168,600 to something higher. It would help fix the growing budget gap that comes with Social Security if this limit was raised.
However, the exact amount of the new cap has not been confirmed. Many experts believe that it will be raised soon.
It would be possible to make bigger contributions to Social Security with this change. This could help the system’s finances as the population ages and more people need retirement benefits.
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