An advocacy group, The Senior Citizens League (SCL), has revised its estimate for the social security cost-of-living adjustment (COLA) in 2025 due to increased inflation.
According to the current trend, The Senior Citizens League has decided to revise the long-term forecast COLA to 2.6 percent in 2025. The most recent COLA estimate exceeds TSCL's February projection of 1.75 percent.
Social Security: 2025 COLA Estimate Rises
According to the 2024 Senior Survey conducted by TSCL, a significant 43 percent of respondents experienced a notable increase in their monthly expenses, surpassing $185.
According to USA Today, a significant majority of respondents reported that their household expenses increased by a higher percentage than the 3.2 percent cost-of-living adjustment (COLA) they received in 2023.
A majority of respondents identified food as the primary factor driving up costs. In light of the current challenging economic climate, a significant majority of individuals found themselves having to rely on their emergency savings.
If the COLA increases by 2.6 percent, there will be an estimated $45 increase. TSCL predicts a potential 2.6 percent increase in the COLA for the upcoming year, but emphasizes that these projections may be revised based on the most recent inflation figures.
According to the statement, the estimated final COLA for 2025 may vary from these current estimates.
In January, Mary Johnson, a social security and Medicare policy analyst at TSCL, highlighted that the long-term inflation model indicated a potential decrease in the COLA for next year to 1.4 percent, which would be the lowest level since 2020.
Furthermore, an increased number of individuals receiving social security benefits may find themselves obligated to pay taxes due to the higher COLA adjustments potentially placing them in taxable income brackets.
A significant portion of respondents in a recent survey conducted by TSCL said that they experienced a change in their tax status during the 2023 tax season.
Specifically, 23% of participants who had been receiving social security benefits for three years or longer indicated that they had to pay taxes for the first time. This finding sheds light on the evolving financial circumstances of this particular group.
TSCL anticipates that the trend will persist during the 2024 tax season, given the significant 8.7 percent COLA adjustment for 2023.
COLA 2025 Increase Still Varies
According to Think Advisor, the group warns that the final COLA for 2025 is expected to vary from the estimates due to the calculation based on the average rate of inflation during the third quarter, which is then compared to the third quarter of the previous year.
It has been highlighted that although federal income tax brackets have undergone changes over the years, the income thresholds that determine the taxation of social security have remained unchanged since 1984.
Over time, older taxpayers may find themselves responsible for paying taxes on their social security benefits.
Several states are actively addressing the issue of taxes on social security benefits. During the month of February. A bill was passed by the House of Delegates in West Virginia, led by the GOP, to gradually reduce and eventually eliminate these payments by 2026.
The bill sailed through the House with unanimous support, garnering a resounding 96-0 vote. Although state taxes on social security have been eliminated by the bill, beneficiaries are still required to pay federal taxes on these receipts.
According to estimates, the tax cuts are projected to have an annual cost of approximately $37 million in both 2025 and 2026. Over 50,000 households in the state are expected to be affected by it.
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