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You are here: Home » Blog » Uncategorized » 2025 Social Security COLA

2025 Social Security COLA

Published on November 21, 2024 by Tim McMahon Leave a Comment

Social Security COLAWith inflation trending down, the Federal Cost of Living Adjustment– (COLA) will be smaller in 2025 than in 2024. For 2024, the increase was 3.2% but beginning in January 2025 Social Security will get a smaller 2.5% increase. Although the most commonly quoted inflation statistic is the Consumer Price Index for All Urban Consumers (CPI-U) for some reason the government chooses to use the October print of the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) instead. Cynics say it was chosen because it tends to be about 1/10th percent lower than the CPI-U.

In 2023, when inflation was much higher, Social Security received an 8.7% COLA. In 2022, the COLA was 5.9%. And in 2021, the COLA was 1.3%. And as you can see from the table below, in several years the COLA was zero.

Automatic Cost-Of-Living Adjustments received since 1975

  • July 1975 — 8.0%
  • July 1976 — 6.4%
  • July 1977 — 5.9%
  • July 1978 — 6.5%
  • July 1979 — 9.9%
  • July 1980 — 14.3%
  • July 1981 — 11.2%
  • July 1982 — 7.4%
  • January 1984 — 3.5%
  • January 1985 — 3.5%
  • January 1986 — 3.1%
  • January 1987 — 1.3%
  • January 1988 — 4.2%
  • January 1989 — 4.0%
  • January 1990 — 4.7%
  • January 1991 — 5.4%
  • January 1992 — 3.7%
  • January 1993 — 3.0%
  • January 1994 — 2.6%
  • January 1995 — 2.8%
  • January 1996 — 2.6%
  • January 1997 — 2.9%
  • January 1998 — 2.1%
  • January 1999 — 1.3%
  • January 2000 — 2.5% (1)
  • January 2001 — 3.5%
  • January 2002 — 2.6%
  • January 2003 — 1.4%
  • January 2004 — 2.1%
  • January 2005 — 2.7%
  • January 2006 — 4.1%
  • January 2007 — 3.3%
  • January 2008 — 2.3%
  • January 2009 — 5.8%
  • January 2010 — 0.0%
  • January 2011 — 0.0%
  • January 2012 — 3.6%
  • January 2013 — 1.7%
  • January 2014 — 1.5%
  • January 2015 — 1.7%
  • January 2016 — 0.0%
  • January 2017 — 0.3%
  • January 2018 — 2.0%
  • January 2019 — 2.8%
  • January 2020 — 1.6%
  • January 2021 — 1.3%
  • January 2022 — 5.9%
  • January 2023 — 8.7%
  • January 2024 — 3.2%
  • January 2025 — 2.5%
(1) The COLA for December 1999 was originally determined as 2.4 percent based on CPIs published by the Bureau of Labor Statistics. Pursuant to Public Law 106-554, however, this COLA is effectively now 2.5 percent.

In December 2024, Social Security COLA notices will be available online to most beneficiaries in the Message Center of their my Social Security account.

Logically, if the government really wanted to be fair, they would use the CPI-e (Consumer Price Index for the Elderly) but although it has been calculated since December 1982 it is still considered “experimental”. Probably, because if they ever make it official, it would require increasing the Social Security COLA.

No Taxes on Social Security?

One plus that may be on the horizon is that Trump promised to cut taxes on Social Security benefits. Although, it sounds good, it only affects a portion of SS beneficiaries. Currently, if you are Single and your “provisional income” is below $25,000, then 0% of your Social Security benefits are taxable anyway. If you are Married the limit rises to $32,000. But you do owe taxes on the amount above the threshold.

So, provisional income between $25,000 and $34,000 for Singles or $32,000 and $44,000 for married couples will result in 50% of your Social Security benefits being taxed at your normal rate. For singles with provisional income over $34,000, or Marrieds over $44,000, 85% of their Social Security benefits get taxed at the normal rate.

Before 1983, all Social Security benefits were tax-exempt, but the government has slowly increased the taxes on Social Security.

Note: Provisional income (aka. combined income) is calculated by adding gross taxable income, IRA withdrawals, dividends and capital gains, tax-free interest, and 50% of Social Security benefits.

Example:

Max and Maxine Profits, (a married couple), receive $42,000 in Social Security benefits and take a $20,000 IRA withdrawal. That equals $41,000 of provisional income, i.e., $21,000 in Social Security (50% of $42,000) and $20,000 from the IRA. The $41,000 minus the $32,000 threshold equals $9,000, of which 50% is taxed. The couple will pay income tax on $4,500.

You might also like:

  • Cost-of-living Adjustment (COLA)
  • Price and Wage Changes since 2000
  • Have Wages Kept Up With Inflation?
  • What is the Difference between the CPI-U and the CPI-W
  • What is Core Inflation and Why Doesn’t It Include Food and Energy?
  • Did the Democrats Really Vote Against the Social Security Cost of Living Increase?

 

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