The COLA percentage is important, but it’s not the only thing to pay attention to.
The government will announce the 2025 Social Security cost-of-living adjustment (COLA) on Oct. 10, 2024. Though it’s not expected to be a large increase relative to the past few years, it’s still important for all those who depend on Social Security checks.
Here are two things to watch for once the COLA is announced, so you can be as prepared as possible going into 2025.
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1. How the COLA will affect your checks
Social Security COLAs are percentages — for example, the 2024 COLA was 3.2%. So when the 2025 COLA comes out, it might not be immediately apparent how much more you’ll get in benefits each month. Fortunately, this isn’t too difficult to figure out.
Technically, the Social Security Administration applies the COLA to your primary insurance amount (PIA). That’s the benefit you qualify for at your full retirement age (FRA), which is between 66 and 67. For those who don’t apply at their FRA, the government then does some additional calculations to adjust your benefits up or down based on their initial claiming age.
But adding the percentage to your current checks can give you a pretty good approximation. For example, say you receive a $2,000 monthly benefit right now, and the 2025 COLA comes in at 2.5% — the latest projection, according to The Senior Citizens League (TSCL). An extra 2.5% on $2,000 is $50, meaning you’d get a new monthly benefit of $2,050 per month. This might be off by a dollar or two, but it should be pretty close.
If you don’t want to do this calculation on your own, the Social Security Administration will send you a personalized COLA notice in December listing your exact 2025 benefit. You may be able to check this information sooner in a my Social Security account.
2. Whether you’ll be at risk of owing Social Security benefit taxes
The IRS taxes the Social Security benefits of certain seniors if their provisional income — calculated as adjusted gross income (AGI) plus any nontaxable interest they’ve earned on investments and half their annual Social Security benefits — exceeds the following thresholds based on their marital status:
|
Marital Status |
0% of Benefits Taxable If Provisional Income Is Under: |
Up to 50% of Benefits Taxable If Provisional Income Is Between: |
Up to 85% of Benefits Taxable If Provisional Income Exceeds: |
|---|---|---|---|
|
Single |
$25,000 |
$25,000 and $34,000 |
$34,000 |
|
Married |
$32,000 |
$32,000 and $44,000 |
$44,000 |
Data source: Social Security Administration.
These thresholds aren’t indexed for inflation, which means that more seniors find themselves owing these benefits over time as their checks increase due to COLAs. This can lead to an unpleasant surprise at tax time.
It’s not too difficult to estimate half your annual Social Security benefit, but the other aspects of provisional income might be foreign to those who aren’t tax professionals. You might consider enlisting one to help you estimate what you’re at risk of owing in Social Security benefit taxes next year, so you can plan accordingly.
You should also be aware that nine states tax the Social Security benefits of some of their seniors. If you live in one of these places, you’ll want to know if you owe the state a cut of your checks as well.
Putting it together
Once you know approximately how much you’ll get from Social Security next year, minus benefit taxes if that applies to you, you can plan the rest of your 2025 budget. You’ll need to cover your remaining expenses with other sources, like income from a job or personal savings.
It’s possible you may have to cover more of your expenses next year than you did this year. Some experts argue COLAs don’t sufficiently help Social Security benefits keep up with inflation, but the only way to fix this is with a government amendment to the program.
Regardless, making a plan as soon as the government announces the 2025 COLA will give you the most time to evaluate your budget for the coming year.