We've still got nearly five months left of 2024, but many seniors' eyes are already turning toward the 2025 Social Security cost-of-living adjustment (COLA). Though inflation is slowing, it's taken quite a toll on retirees' budgets, and many are hoping for some much-needed relief in the new year.
We don't know what the 2025 COLA will look like yet. That news is coming in October. But what's even less certain is how it's going to affect seniors' benefits.
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Your checks will get bigger
We don't know what the 2025 Social Security COLA will be exactly, but we do know there's almost certainly going to be one. That means you will get more money from Social Security in 2025.
Right now, the best estimates suggest that the COLA will come in at around 2.63%. That would add about $50 per month to the $1,918 average monthly retirement benefit as of June 2024. Obviously, some people will get more than this, and others will get less. But everyone will see some type of increase.
The official COLA announcement will be Oct. 10, 2024. Once we know this, you'll be able to estimate how much your checks will grow in 2025. The Social Security Administration will also deliver personalized COLA notices to all beneficiaries in December.
But your buying power might not
It's reasonable to think that larger checks mean greater buying power, but that's not always the case. For one thing, many argue that COLAs don't do enough to keep pace with inflation. The average retirement benefit in 2024 is worth just $0.80 on the dollar compared to the average benefit in 2010, according to The Senior Citizens League (TSCL).
This means that you'll need $1 today to buy what you could get with $0.80 in 2010. And this trend seems likely to continue. So seniors are finding that their checks are covering less of their expenses each year, even while their dollar amounts continue to grow.
Another problem retirees are running into is Social Security benefit taxes . The federal government taxes some of the benefits of seniors whose provisional incomes -- adjusted gross income (AGI) , plus nontaxable interest and half their annual Social Security benefit -- exceed $25,000 for single adults and $32,000 for married couples.
These benefit thresholds haven't changed since the 1980s. As checks grow, more people wind up owing these taxes. So in addition to losing buying power, retirees are also losing some of their checks to Uncle Sam. Again, there's no sign of this changing.
What can seniors do?
There isn't much seniors can do to affect COLAs or Social Security benefit taxes. You can write to your Congressional representatives and advocate for reform, but it's ultimately up to them to make this happen.
Seniors have to focus on what they can control. If you have a substantial amount of savings, you can rely upon this to cover what Social Security doesn't. Those lacking in savings may have to consider a part-time job or other government benefits to help make ends meet.
But there's no reason to panic too much right now. Once we know what the 2025 COLA will be, you can begin to plan your budget for next year.
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