The Social Security Administration (SSA) makes an increase mandatory by law, which must be based on how much inflation has increased in the last year. This increase is called the cost-of-living adjustment (COLA), and is designed so that beneficiaries of Social Security, Supplemental Security Income (SSI), and Social Security Disability Insurance (SSDI) retirements do not lose purchasing power in the face of inflation and rising costs of essential items such as rent, healthcare, and food.
Although the Social Security Law was signed by President Franklin D. Roosevelt on August 14, 1935, and Medicaid and Medicare were integrated into this great umbrella in 1965, the COLA adjustment was only added in 1972, because they realized that beneficiaries were losing purchasing power as prices increased.
With the introduction of COLA, the automatic mechanism for adjusting Social Security benefits to the cost of living was established, which is based on the Consumer Price Index for Urban Workers and Clerical Employees (CPI-W), which measures the variation in the cost of a basket of goods and services representative of urban household consumption.
The Social Security COLA Increments From 2000 Through 2024
- 2000: 3.5%
- 2001: 2.6%
- 2002: 1.4%
- 2003: 2.1%
- 2004: 2.7%
- 2005: 4.1%
- 2006: 3.3%
- 2007: 2.3%
- 2008: 5.8%
- 2009: 0.0%
- 2010: 0.0%
- 2011: 3.6%
- 2012: 1.7%
- 2013: 1.5%
- 2014: 1.5%
- 2015: 1.7%
- 2016: 0.0%
- 2017: 0.3%
- 2018: 2.0%
- 2019: 2.8%
- 2020: 1.6%
- 2021: 1.3%
- 2022: 5.9%
- 2023: 8.7%
- 2024: 3.2%
Social Security COLA 2025 Forecast: How Much Will My Benefits Increase?
In recent years, ups and downs in inflation due to international events such as the pandemic and conflicts have impacted the purchasing power of beneficiaries of Social Security and other federal initiatives.
People who rely on Social Security checks to cover their expenses and maintain a decent and comfortable standard of living, mostly retirees and people with disabilities, are looking forward to the increase in benefits after the COLA increase. Therefore, the government must ensure that these individuals receive enough to handle the increase in wages and daily living costs.
The U.S. Social Security Cost of Living Adjustment (COLA)
it plays a crucial role in providing a higher monthly amount that can help manage expenses and maintain a dignified life. Based on the previous two quarters, the COLA for 2025 is projected to be 2.57%. However, after the first quarter, this estimate was adjusted to 2.66%.
According to The Senior Citizens League (TSCL), retirees have lost up to 36% of purchasing power since 2000, and almost half of households with elderly people rely on Social Security payments to make ends meet and, without them, most would live in poverty.
The Joe Biden administration has been handling inflation well, and it has remained stable in recent months, and well, that’s great news for Social Security beneficiaries, because food and public services will go up less, but their benefits will also go up less.
Beware of the Tax Impact on Social Security Benefits
One of the reasons a high COLA adjustment can be detrimental to retirees’ overall wealth is retirees’ Social Security benefits. Social Security income is taxed based on a metric known as combined income. Therefore, a higher COLA could cause a larger part of your profits to become taxable.
Combined income is calculated as half of your Social Security benefits, plus your adjusted gross income (AGI) and any nontaxable interest income. As your Social Security benefits increase, so does your combined income, potentially leading to a larger percentage of your benefits being taxed.
The following table explains how Social Security benefits may be taxable at the federal level:
