Why You Should Expect a Lower Social Security COLA for 2025

inflation presents a challenge for most American households but it can be particularly pernicious for retirees who live on a fixed income for that reason retirees who have signed up for social security benefits closely monitor the annual cost of living adjustment in their payments 40% of seniors rely on social security for more than half of their monthly income and 14% rely on it for more than 90% of their income according to an analysis by ARP those seniors may be disappointed by the increase in their benefits in 2 if the inflation rate remains on track the annual adjustment will be less than 3% the smallest increase since 2021 the Kiplinger letter forecasts that the 2025 Cola will be 2.6% down from 3.2% in 202024 the 2025 Cola will be based on the Consumer Price Index for urban wage earners and clerical workers in the third quarter of 2024 so if inflation Rises before October the cola will be adjusted upward or or if inflation declines the cola will be reduced however the Kiplinger letter forecasts that the inflation rate for the rest of the year is unlikely to fall below recent levels what the 2025 Colo will mean for retirees the estimated 20125 Cola would still be larger than the average Cola before the pandemic's effects ignited the inflation rate still the cola would fall short of the rate of inflation for retirees actual costs advocates for seniors say seniors who own their homes have been insulated from steep increases in monthly rents but older homeowners still have to pay property taxes and homeowners insurance both of which have also risen sharply in recent years housing costs also include electric bills which spiked over the summer because of record setting heat says Mary Johnson a social security and Medicare analyst who forecasts a social security Cola of 2.7% healthcare costs have also risen faster than the rate of inflation and account for a disproportionate percentage of retire overall costs Johnson says retired Americans spend an average of 14% of their monthly income on prescription drugs and other outof pocket medical expenses according to a survey of retirees by schroers a wealth management firm inflation in healthcare costs increases Medicare Part B premiums which cover doctors visits and other types of outpatient Medical Care most retirees have their part B premiums automatically deducted from their Social Security payments so an increase in premiums can diminish the Boost from the Cola in its annual report released in March medicare's Board of Trustees predicted that standard Medicare Part B premiums will increase about 5.8% in 2025 to $185 a month up from $748 a month in 2024 the centers for Medicare Medicaid services CMS will announce Medicare Part B premiums for 2025 this fall increases in Part B premiums reverberate a bit more for a subset of seniors who are subject to the Medicare High income surcharge also known as the income related monthly adjustment amount Irma the surcharge is based on beneficiaries modified adjusted gross income from two years earlier so the 2025 surcharge will be based on senior Magi and 2023 Magi is a taxpayers adjusted gross income with a handful of deductions added back including student loan interest tax exempt Social Security payments and excluded interest on savings bonds but