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Due to record-high inflation, welfare recipients have faced greater cost-of-living adjustments in recent years.
However, the increase next year is unlikely to be quite as generous.
Based on new government inflation data, beneficiaries could potentially expect only a 2.5 percent increase in their benefits in 2025, estimates Mary Johnson, an independent Social Security and Medicare analyst.
In 2024, more than 71 million Americans, including those receiving Social Security benefits and supplemental income, experienced a 3.2% cost-of-living adjustment, according to the Social Security Administration.
A rise in inflation pushed the annual benefit increase even higher in 2023, when there was an increase of 8.7%, the highest in four decades. This followed a 5.9% increase in 2022, which also marked a recent high at the time.
In 2021, the cost of living adjustment was 1.3%.
If a COLA of 2.5% were to come into force in 2025, Johnson said this would be average.
Importantly, the estimate for the Social Security cost-of-living adjustment may change in 2025.
The Social Security Administration is expected to announce the official benefit increase in October, which will include the government’s new inflation data for September. Johnson said the current estimate of 2.5 percent gave him about a 17 percent chance of an increase and a 13 percent chance of a decrease.
The annual Social Security cost-of-living adjustment is calculated using third-quarter data from a subset of the consumer price index called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
As the Center for Retirement Research at Boston College found, when inflation is high, two factors tend to affect the net amount retirees receive from Social Security: taxes on benefits and Medicare Part B premiums.
Trump calls for abolition of social benefit taxation
Up to 85% of Social Security benefits may be subject to federal income tax.
These taxes are levied on total income, which is the sum of half of your Social Security benefits, total adjusted gross income, and tax-free interest.
Because these thresholds do not change, more recipients pay taxes on their benefits over time.
Former President Donald Trump called for the abolition of taxes on social benefits in his election campaign.
In a September 9 post on his social media platform Truth Social, Trump reiterated his plans to “help seniors on fixed incomes” by “not taxing Social Security benefits.”
If your total income as an individual is currently between $25,000 and $34,000 – or between $32,000 and $44,000 if you’re married and filing a joint return – you may pay tax on up to 50% of your benefits.
If your total income is more than $34,000 and you file a single tax return – or if you’re married and filing a joint return and have total income more than $44,000 – up to 85% of your benefits may be taxable.
Trump’s plan to eliminate these taxes would have consequences for both the Social Security trust funds and Medicare hospital insurance, according to the Committee for a Responsible Federal Budget, with deficits expected to increase by $1.6 trillion to $1.8 trillion by 2035.
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Eliminating taxes on Social Security benefits is a “extremely unhelpful idea” because that money helps cover the program’s expenses and make it progressive, Alicia Munnell, director of the Center for Retirement Research at Boston College, recently wrote.
However, taxation of social benefits could be better structured, for example through new income limits adjusted for inflation and adjustments to the share of social benefits that flow into adjusted gross income, Munnell said.
Trump’s campaign team did not respond to an immediate request for comment.
Medicare Part B premiums are getting more expensive
For many retirees, monthly premium payments for Medicare Part B — which covers doctor, outpatient hospital and some home health services — are deducted directly from their Social Security checks.
But while Medicare Part B premiums are rising an average of 5.5 percent annually, Social Security cost-of-living adjustments are rising an average of 2.6 percent annually, according to a new analysis by Johnson.
As a result, premium costs account for an ever-increasing share of social security benefits.
Over the past two decades, Medicare Part B premiums and deductibles have risen twice as fast as Social Security cost-of-living adjustments, Johnson said.
From 2005 to 2024, Medicare Part B premiums increased by 109.9 percentage points, while Social Security cost-of-living adjustments totaled 52.5 percentage points.
The dramatic difference is due in part to the fact that Medicare costs are not included in the annual calculation of Social Security’s COLA, Johnson explained.
