(Source-marketwatch)
After several years of high cost-of-living adjustments for Social Security (COLA) beneficiaries due to inflation, the increase for 2025 may be more modest. According to estimates by independent Social Security and Medicare analyst Mary Johnson, next year’s COLA could be just 2.5%, a significant drop from the previous two years.
In 2024, more than 71 million Americans saw a 3.2% increase in their Social Security and Supplemental Security Income benefits, following an 8.7% rise in 2023, the highest in four decades. The 2025 estimate, while lower, is considered average, but it is subject to change based on updated inflation data.
Impact of Inflation and Medicare Premiums
The official Social Security COLA is calculated using third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Social Security Administration will announce the final 2025 adjustment in October, once September’s inflation data is available. Johnson notes that the current estimate has a 17% chance of increasing and a 13% chance of decreasing.
Despite COLA increases, retirees face other financial challenges. Medicare Part B premiums, which cover physician and outpatient services, are deducted from Social Security benefits. These premiums have risen faster than COLA increases, growing by 109.9% between 2005 and 2024, while Social Security benefits increased by just 52.5%. This discrepancy has caused premiums to take up a larger portion of Social Security checks.
Trump’s Call to End Social Security COLA Taxes
Former President Donald Trump has reignited his call to eliminate federal income taxes on Social Security benefits as part of his 2024 campaign platform. Currently, up to 85% of benefits may be taxed depending on a beneficiary’s income. Trump’s proposal aims to help seniors on fixed incomes, but it could have significant financial consequences.
The Committee for a Responsible Federal Budget estimates that removing these taxes could increase deficits in the Social Security and Medicare Hospital Insurance trust funds by $1.6 trillion to $1.8 trillion through 2035. While some experts believe the taxation thresholds could be better structured, completely eliminating the tax is seen as a problematic idea that would harm the financial stability of Social Security and Medicare programs.
Growing Financial Strain on Retirees
With Social Security COLA increases potentially falling and Medicare Part B premiums rising, retirees face growing financial strain. As inflation and healthcare costs continue to challenge the fixed incomes of many seniors, experts are calling for reforms that better balance benefit increases with the rising costs of essential services like healthcare.
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