Social Security beneficiaries have experienced significant cost-of-living adjustments (COLAs) in recent years due to soaring inflation rates. However, the projected increase for 2025 might not be as substantial, with estimates suggesting a mere 2.5% rise in benefits, according to Mary Johnson, an independent analyst specializing in Social Security and Medicare. In 2024, over 71 million Americans, including those receiving Social Security and Supplemental Security Income, benefited from a 3.2% COLA, following a remarkable 8.7% increase in 2023, the highest adjustment in four decades. This followed a 5.9% increase in 2022, which was also a notable high, while the COLA for 2021 was 1.3%.
The 2.5% adjustment for 2025 represents an average increase, though it is important to note that this estimate may change. The official announcement regarding the benefits increase will come from the Social Security Administration in October, coinciding with the release of September’s government inflation data. According to Johnson, the current estimate has a 17% chance of rising and a 13% chance of declining. The annual COLA is determined using third-quarter data from a specific consumer price index, known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Factors influencing the net amount retirees receive amid rising inflation include the taxes on benefits and Medicare Part B premiums, as examined by the Center for Retirement Research at Boston College.
Former President Donald Trump has proposed eliminating taxes on Social Security benefits as part of his campaign. Trump reiterated his commitment to “helping seniors on fixed incomes” with a plan for “no tax on Social Security benefits” on his social media platform, Truth Social. Currently, if an individual tax filer’s combined income is between $25,000 and $34,000— or between $32,000 and $44,000 for married couples filing jointly—up to 50% of their benefits may be taxed. Should their combined income exceed $34,000 (or $44,000 for married couples), up to 85% of their benefits are taxable. The Committee for a Responsible Federal Budget noted that Trump’s proposal could significantly impact Social Security and Medicare funding, leading to estimated deficits of $1.6 trillion to $1.8 trillion by 2035. Alicia Munnell, director at the Center for Retirement Research, labeled the plan as “supremely unhelpful,” arguing the necessity of taxes in covering the program’s expenditures and maintaining its progressive nature. Munnell suggested that while the taxation structure could benefit from adjustments, especially with income thresholds indexed for inflation, Trump’s campaign did not provide an immediate response to inquiries.
In addition, many retirees face rising Medicare Part B premiums, which are deducted directly from their Social Security benefits. While Medicare Part B premiums typically increase by an average of 5.5% annually, the average increase in Social Security COLAs is just 2.6%, as highlighted in Johnson’s analysis. This disparity means that premium costs increasingly consume a larger portion of Social Security benefits.