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2025 COLA estimate increases with inflation, but seniors still feel short changed.
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Date:2025-04-12 16:26:19
The latest estimate for Social Security's cost-of-living adjustment for 2025 jumped to 2.4% due to sharper gains in inflation last month, according to The Senior Citizens League (TSCL), a nonprofit advocacy group.
In January, the 2025 COLA estimate was 1.75%.
The consumer price index (CPI), a broad measure of goods and services costs, rose 3.2% in February from a year earlier, according to government data reported on Tuesday.
The so-called core rate, which strips out volatile food and energy prices, rose 3.8% on the year.
The subset consumer price index for urban wage earners and clerical workers, or CPI-W, that COLA is based on, rose two-tenths from January to 3.1%.
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All the items older adults spend most of their money on continued to rise, said Mary Johnson, TSCL policy analyst. "Shelter, medical, and transportation prices remain higher than overall inflation rate," she said.
Shelter jumped 5.7% year-over-year while medical care services edged up 1.1%, data from the Bureau of Labor Statistics showed. Hospital care increased 6.1% and transportation services soared 9.9%.
How is COLA calculated?
The Social Security Administration bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers (CPI-W) from July through September.
The index for urban wage earners largely reflects the broad index the Labor Department releases each month, although it differs slightly. Last month, while the overall consumer price index rose 3.2%, the index for urban wage earners increased 3.1%.
What was 2024's COLA?
Older adults received a 3.2% bump in their Social Security checks at the beginning of the year to help recipients keep pace with inflation. That increased the average retiree benefit by $59 per month.
Did the 2024 COLA bump help seniors catch up to inflation?
No, according to TSCL's survey of 815 older adults beginning in January. Seniors are still catching up from the soaring prices of the past few years, Johnson said
Ninety-three of survey respondents said their household expenses increased by more than $59 per month in 2023, the survey said. Forty-three percent said monthly household expenses rose more than $185.
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Social Security taxation is also on the rise
More Social Security recipients are paying taxes on their benefits, too.
The 5.9% COLA increase in 2021, the 8.7% bump in 2023 and the 3.2% rise this year increased people's incomes. How much of your Social Security is taxed depends on how much income you have. Some states may also take a cut.
"Unlike federal income tax brackets, the income thresholds that subject Social Security benefits to taxation have never been adjusted for inflation since the tax became effective in 1984," Johnson said.
That means more older taxpayers become liable for the tax on Social Security benefits over time, and the portion of taxable benefits can increase as retirement income grows, she said.
If income thresholds for Social Security had been adjusted for inflation like federal tax brackets, the individual filing status level of $25,000 would be over $75,250, and the joint filer level would be more than $96,300 based on inflation through December 2023, she estimated.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
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