• As inflation subsides, Social Security beneficiaries are poised to see a lower benefit increase next year.
• A new estimate points to a 2.5% cost-of-living adjustment, or COLA, in 2025, which would be closer to the average increase beneficiaries typically receive.
• The Social Security Administration is expected to announce the official cost-of-living adjustment for 2025 next month.

Social Security beneficiaries have seen higher cost-of-living adjustments in recent years, prompted by record high inflation.

Yet next year's increase may not be as generous.

Based on new government inflation data, beneficiaries may see just a 2.5% increase to benefits in 2025, estimates Mary Johnson, an independent Social Security and Medicare analyst.

In 2024, more than 71 million Americans — including Social Security and Supplemental Security Income beneficiaries — saw a 3.2% cost-of-living adjustment, according to the Social Security Administration.

A spike in inflation drove the annual benefit boost even higher in 2023, when there was an 8.7% increase, the highest in four decades. That followed a 5.9% raise in 2022, which at the time also marked a recent high.

In 2021, the cost-of-living adjustment was 1.3%.

If a 2.5% COLA goes into effect in 2025, it would be about average, according to Johnson.

Importantly, the estimate for the 2025 Social Security cost-of-living adjustment is subject to change.

The Social Security Administration is poised to announce the official increase to benefits in October. That will include new government inflation data for September. The current 2.5% estimate has about a 17% chance of increasing and a 13% chance of decreasing, according to Johnson.

The annual Social Security cost-of-living adjustment is calculated using third-quarter data from a subset of the consumer price index, known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.  

Two factors tend to affect the net amount retirees receive from Social Security amid high inflation, the Center for Retirement Research at Boston College has found – taxes on benefits and Medicare Part B premiums.

Trump calls for ending taxes on benefits

Up to 85% of Social Security benefits may be subject to federal income taxes.

Those taxes are applied to combined income, which is the sum of half your Social Security benefits, total adjusted gross income and nontaxable interest.

Because those thresholds do not change, more beneficiaries are paying taxes on benefits over time.

Former President Donald Trump has called for ending taxes on Social Security benefits as part of his campaign platform.

Trump re-upped his plans to "help seniors on fixed incomes" with "no tax on Social Security benefits" in a post on his social media platform, Truth Social, on Sept. 9.

Currently, if your combined income as an individual tax filer is between $25,000 and $34,000 — or between $32,000 and $44,000 if married and filing jointly — you may pay taxes on up to 50% of your benefits.

If your combined income is more than $34,000 and you file individually — or if you're married and file jointly and have more than $44,000 in combined income — up to 85% of your benefits may be taxed.

Trump's plan to eliminate those taxes would have consequences for both the Social Security and Medicare Hospital Insurance trust funds, according to the Committee for a Responsible Federal Budget, with deficits increasing by an estimated $1.6 trillion to $1.8 trillion through 2035.

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Eliminating taxes on Social Security benefits is a "supremely unhelpful idea," since that money helps cover the program's spending and helps make it progressive, Alicia Munnell, director at the Center for Retirement Research at Boston College, recently wrote.

However, taxes on benefits could be better structured, with new income thresholds indexed for inflation and adjustments to the share of benefits to be included in adjustable gross income, according to Munnell.

Asked for comment on how the former president would pay for his proposal to eliminate taxes on Social Security, Trump campaign national press secretary Karoline Leavitt did not provide details, but sent a statement affirming Trump's commitment to "strongly protect" the program.

Medicare Part B premiums becoming more expensive

Many retirees have monthly premium payments for Medicare Part B — which covers physician, outpatient hospital and some home health services — deducted directly from their Social Security benefit checks.

Yet while Medicare Part B premiums go up by 5.5% per year on average, Social Security cost-of-living adjustments average 2.6% annually, according to a new analysis by Johnson.

Consequently, premium costs take up an increasingly large share of Social Security benefits.

Over the past two decades, Medicare Part B premiums and deductibles grew at double the rate of Social Security's cost-of-living adjustments, Johnson said.

From 2005 to 2024, Medicare Part B premiums grew by 109.9 percentage points, while Social Security cost-of-living-adjustments totaled 52.5 percentage points.

The dramatic difference is due in part to Medicare costs not being factored into the annual Social Security COLA calculations, Johnson explained.