Advocacy group The Senior Citizens League (SCL) has raised its estimate of social security cost-of-living adjustment (COLA) for 2025, citing higher inflation.
“The March CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) came in at 3.5 percent,” TSCL said in an April 10 press release. “That’s higher than the inflation trends indicated last month based on February’s CPI-W data. Based on this trend, The Senior Citizens League is adjusting the long-term forecast COLA to 2.6 percent in 2025.” The latest COLA estimate is higher than TSCL’s February projection of 1.75 percent.
The 2024 Senior Survey conducted by TSCL found that 43 percent of respondents saw their expenses jump by more than $185 per month last year.
Seventy-one percent said their household costs rose by more than the 3.2 percent COLA benefit they received in 2023. Sixty-one percent cited food as the lead contributor to rising expenses. Due to the ongoing tight financial situation, 53 percent had to dip into their emergency savings.
“If the COLA increases by 2.6 percent, that will be an approximately $45 increase. What can you buy for that? Not much,” said Shannon Benton, a director who oversees COLA estimates at TSCL.
“From long-term dwindling purchasing power to heightened financial uncertainty, the trouble of seniors not being able to make ends meet remains a pressing concern,” she said, adding that the issue should be “a pressing concern of Congress as well.”
While TSCL estimates a 2.6 percent hike in the COLA for next year, the group notes that these calculations are subject to change depending on the latest inflation data. As such, “the final COLA for 2025 may differ from these estimates,” it said.
Back in January, Mary Johnson, a social security and Medicare policy analyst at TSCL, pointed out that the long-term inflation model suggested the “COLA for next year could drop to 1.4 percent—the lowest level since 2020.”
“That’s not necessarily good news if prices for housing, hospital care, auto insurance, and other costs remain at today’s elevated levels.”
In addition, more social security beneficiaries may have to pay taxes since the higher COLA adjustments could push them into taxable income brackets. Twenty-three percent of participants of a TSCL survey who received social security for three years or more said they paid taxes for the first time in the 2023 tax season.
TSCL is expecting the trend to continue into the 2024 tax season since the COLA adjustment for 2023 was a whopping 8.7 percent.
“We expect the higher Social Security income will not only cause more Social Security recipients to pay taxes on their benefits this tax season, but taxes are taking a bigger portion of Social Security checks in 2024,” Ms. Johnson said.
TSCL pointed out that while federal income tax brackets have been adjusted over time, the income thresholds that subject social security to taxation have not been adjusted since 1984. As a result, older taxpayers are liable for taxes on their social security benefits over time.
Reducing Overpayment Withholding
Some states are taking action against taxes imposed on social security benefits. In February. The GOP-led House of Delegates in West Virginia passed a bill to phase out such payments over a three-year period, fully eliminating it by 2026.The bill passed the House 96–0. While the bill eliminates state taxes on social security, beneficiaries still have to pay federal taxes on such receipts.
The tax cuts are expected to cost around $37 million per year in 2025 and 2026. It is projected to impact over 50,000 households in the state.
Some have opposed the measure. Kelly Allen, executive director of the West Virginia Center on Budget and Policy, said that “continued efforts to erode and eliminate the personal income tax are undermining our ability to meet the needs of seniors, children, and families across our state.”
When a beneficiary has been overpaid by the SSA, law requires the agency to seek repayment. Earlier, if the agency overpaid a beneficiary, it would withhold 100 percent of their monthly benefits until the overpaid amount was recovered.
But beginning March 25, “the agency will collect ten percent (or $10, whichever is greater) of the total monthly Social Security benefit to recover an overpayment, rather than collecting 100 percent as was previous procedure,” SSA said.
In July last year, Phillip Swagel, director of the nonpartisan Congressional Budget Office (CBO), told lawmakers that the two trust funds behind Social Security—Old-Age and Survivors Insurance and Disability Insurance—are set to be exhausted by 2034.
“In 2034, Social Security revenues are projected to equal 75 percent of the program’s scheduled outlays, resulting in a 25 percent shortfall. Thus, CBO estimates that Social Security benefits would be reduced by 25 percent in 2034 under the payable-benefits scenario,” Mr. Swagel stated.
“If we have sufficient growth in our economy, we’ll be able to meet our needs,” he said.
