Social Security Checks May Be Larger in 2025, Analyst Says

Blank Social Security checks are run through a printer at the US Treasury printing facility in Philadelphia, Pa., on Feb. 11, 2005. (William Thomas Cain/Getty Images)

Retired Americans receiving Social Security payments may see a higher-than-anticipated increase next year, a policy group predicted, citing higher-than-expected inflation for the start of 2024.

The cost-of-living adjustment (COLA) for monthly payments could be 2.4 percent starting next year, an increase from a previous forecast, said the Senior Citizens League, a nonpartisan group representing retired people, according to several reports this week.

“This is way early,” Mary Johnson, a policy analyst with the Senior Citizens League, told CNBC. “It will change multiple times since the COLA is on the average inflation in the third quarter of the year against the previous year.”

She added: “A lot can happen between now and then.”

In the Department of Labor’s monthly report this week, data showed that the consumer price index (CPI) rose 0.4 percent in February, after climbing 0.3 percent in January. Shelter, which includes rents, rose 0.4 percent after advancing 0.6 percent in the prior month. Gasoline prices also went up 3.8 percent after declining by 3.3 percent in January.

In the 12 months through February 2024, the CPI increased 3.2 percent, after advancing 3.1 percent in January 2024, according to the data.

Elaborating, Ms. Johnson told Yahoo Finance that “shelter, medical, and transportation prices remain higher than the overall inflation rate,” which is calculated using the CPI.

“It is an ongoing struggle for seniors and retired people trying to keep up with these costs,” she added. “It’s like being stuck in the mud. They’re spinning their wheels. Every time someone thinks they have all their bills settled, and they get a small raise with a new COLA, there’s always some new healthcare disaster right around the corner, or their rent increases by more than the amount of the COLA.”

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But Ms. Johnson said that she believes the inflation numbers will be lower in 2024. “Clearly, inflation rates are expected to fall from 2023 levels, and the COLA for 2025 will also be lower,” she added to Yahoo Finance.

Last month, the seniors policy group projected that 2025’s Social Security checks would see a 1.75 percent increase based on the January CPI data.

“It’s really important for people to stay informed about what’s on the horizon for Social Security,” Ms. Johnson said. “Some of those changes can affect our pocketbooks in the very near future. So it’s a good time to get up to speed on what those changes are and how it could affect you.”

For all of 2024, the COLA for Social Security payments rose 3.2 percent, which was based on inflation numbers posted in July, August, and September 2023. That was a decline from the 8.7 percent COLA that went into effect in 2023 after decades-high inflation was reported throughout 2022.

If the adjustment Social Security checks drops in 2025 compared to 2024, Ms. Johnson said last month that it’s “not necessarily good news if prices for housing, hospital care, auto insurance, and other costs remain at today’s elevated levels.” That’s because some seniors may have to pay taxes on their Social Security benefits from the previous year.

“The growing number of those getting hit by the tax is due to fixed-income thresholds,” she said. “Unlike federal income tax brackets, the income thresholds that subject Social Security benefits to taxation have never been adjusted for inflation since the tax became effective in 1984.”

Inflation Worries

Inflation picked up in January, and was largely blamed on the price hikes by service providers at the beginning of the year, which economists said were not fully addressed by the model used by the government to strip out seasonal fluctuations from the data.

There was also a jump in owners’ equivalent rent, a measure of the amount homeowners would pay to rent or would earn from renting their property, which diverged from rents, according to the Labor Department’s report.

The cost of health care was unchanged after rising 0.5 percent in the prior month. Hospital services prices decreased 0.6 percent, but the cost of dental services increased 0.4 percent. Airline fares accelerated 3.6 percent while motor vehicle insurance cost 0.9 percent more.

Services excluding energy increased 0.5 percent after shooting up 0.7 percent in January. The rise in the so-called super core services excluding shelter slowed to 0.5 percent from 0.8 percent in the prior month.

Goods prices rebounded by 0.4 percent after falling 0.3 percent  in January. They were boosted by increases in the prices of apparel. Used cars and trucks prices jumped 0.5 percent.

Core goods prices rose 0.1 percent, the first increase since last May, after falling 0.3 percent in January.

Reuters contributed to this report.