Because inflation has been so high lately, Social Security recipients have seen bigger cost-of-living increases.
But the rise might not be as big next year.
Mary Johnson, a freelance Social Security and Medicare analyst, thinks that beneficiaries may only see a 2.5% increase in their benefits in 2025, based on new government figures on inflation.
The Social Security Administration says that the cost of living increased by 3.2% for more than 71 million Americans in 2024. This includes people who get Social Security or Supplemental Security Income.
The annual benefit rise went up even more in 2023, when prices went up by 8.7%, which was the most in forty years. In 2022, the rate went up by 5.9%, which was also a recent high.
The change in the cost of living was 1.3% in 2021.
Johnson says that a 2.5% COLA in 2025 would be about normal.
It is important to note that the estimate for the cost-of-living increase to Social Security in 2025 could change.
In October, the Social Security Administration will make the public announcement that benefits will go up. That will have new September inflation figures from the government.
Johnson says there is a 17% chance that the current estimate of 2.5% will go up and a 13% chance that it will go down.
A part of the consumer price index called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to figure out the annual cost-of-living increase for Social Security.
The Centre for Retirement Research at Boston College found that taxes on benefits and Medicare Part B premiums tend to change the net amount that people get from Social Security when prices are high.
Trump calls for ending taxes on benefits
The federal government may tax up to 85% of your Social Security payments as income.
Those taxes are taken out of your overall income, which is half of your Social Security benefits plus your adjusted gross income and interest that is not taxed.
Over time, more people who get benefits are paying taxes on them because those limits do not change.
Donald Trump, who was president before, promised not to tax Social Security benefits as part of his campaign plan.
In a post on his Truth Social page on September 9, Trump said again that he wanted to “help seniors on fixed incomes” by not taxing Social Security payments.
At the moment, you may have to pay taxes on up to half of your benefits if your total income as a single taxpayer is between $25,000 and $34,000, or between $32,000 and $44,000 if you are married and file jointly.
When you file as an individual, up to 85% of your benefits may be taxed if your total income is more than $34,000. If you are married and file jointly, your total income must be more than $44,000.
The Committee for a Responsible Federal Budget says that Trump’s plan to get rid of those taxes would hurt both the Social Security and Medicare Hospital Insurance trust funds. From now until 2035, deficits are expected to grow by $1.6 trillion to $1.8 trillion.
Alicia Munnell, head of the Centre for Retirement Research at Boston College, recently wrote that getting rid of taxes on Social Security benefits is a “supremely unhelpful idea” because the money helps pay for the program’s costs and makes it progressive.
Munnell says that taxes on benefits could be better set up with new income levels that are adjusted for inflation and changes to the amount of benefits that are counted as part of an individual’s modified gross income.
When asked how the former president planned to pay for his plan to get rid of taxes on Social Security, Trump campaign national press secretary Karoline Leavitt did not give any details. Instead, she sent a statement reaffirming Trump’s promise to “strongly protect” the program.
Medicare Part B premiums becoming more expensive
Medicare Part B covers doctor visits, outpatient hospital stays, and some home health services. For many retirees, the monthly premiums for this plan are taken straight out of their Social Security checks.
However, Johnson’s new research shows that Social Security cost-of-living increases only go up by 2.6% per year, while Medicare Part B premiums go up by 5.5% per year on average.
As a result, premium costs are eating up a bigger and bigger chunk of Social Security payments.
Jones said that Medicare Part B premiums and deductibles have grown at twice the rate of Social Security’s cost-of-living increases over the last 20 years.
Medicare Part B premiums went up by 109.9 percentage points from 2005 to 2024, while Social Security cost-of-living changes went up by a total of 52.5 percentage points.
Johnson said that the big difference is partly because Medicare costs are not taken into account when figuring out the yearly Social Security COLA.