The Senior Citizens League (TSCL) has revised its forecast for the Social Security cost-of-living adjustment (COLA) for 2025 to a modest 2.5%, down from the 3.2% increase seniors received in 2024.
This anticipated smaller adjustment is raising concerns, particularly as inflation continues to outpace these increases, creating financial strain for retirees.
Impact on Average Social Security Benefits
This Article Includes
The 2.5% COLA would lead to relatively small monthly benefit increases for retirees, depending on their age and current benefits. Here’s how the 2025 increase might look:
- Age 62:
Current benefit: $1,298.26
After 2.5% COLA: $1,330.72
Monthly increase: $32.46 - Age 67:
Current benefit: $1,563.06
After 2.5% COLA: $1,602.14
Monthly increase: $39.08 - Age 70:
Current benefit: $2,037.54
After 2.5% COLA: $2,088.48
Monthly increase: $50.94
These increases may provide some relief, but they will likely be offset by rising costs of essential services like shelter, healthcare, and transportation. Additionally, many retirees may face increases in Medicare premiums, which could further reduce the net impact of the COLA on their monthly income.
Inflation’s Impact on Seniors
Seniors are feeling the pressure as inflation continues to outstrip COLA adjustments. Key living expenses, such as shelter (up 5.7%), hospital services (up 7.5%), transportation (up 10.7%), and electricity (up 5%), have risen sharply.
These increases far exceed the 2025 forecasted COLA, potentially eroding the purchasing power of Social Security benefits even further.
Additionally, the poverty rate for Americans aged 65 and older rose from 10.7% in 2021 to 14.1% in 2022, highlighting the financial hardships many seniors are facing.
Should COLA Be Based on a Different Metric?
Many argue that the current method of calculating COLA, which is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), does not accurately reflect the spending patterns of retirees.
The CPI-W tracks price changes in goods and services for working-age individuals but does not account for the higher healthcare costs and other expenses retirees face.
Experts suggest using the Consumer Price Index for the Elderly (CPI-E), which tracks inflation specific to those 62 and older. The CPI-E has risen faster than the CPI-W, which suggests that it could lead to higher COLAs if used. For example, in the first quarter of 2024, the CPI-E rose by 3.6%, while the CPI-W rose by only 3.2%.
Tax Implications and Social Security Solvency
Rising Social Security benefits, coupled with unchanged income thresholds for taxation, mean more seniors are becoming subject to taxes on their benefits.
Introduced in 1984, the thresholds for taxing Social Security benefits have not been adjusted for inflation, causing more retirees to owe taxes as their benefits increase.
Looking ahead, there are concerns about the solvency of Social Security. Without reforms, the program’s trust fund is expected to be depleted by 2035, which could lead to benefit cuts. This adds to the urgency for retirees and younger generations to save and invest strategically
