Good news for retirees: The amount of your social security check is in for a boost.
Starting next year, in 2025, retirees will see a boost in their Social Security checks thanks to a notable cost-of-living adjustment (COLA) — but this adjustment is more moderate than in previous years, which is actually a good thing.
These annual adjustments help retirees maintain their purchasing power in the face of rising living costs. Given that many seniors rely on Social Security for a significant portion of their income, a higher COLA can make a meaningful difference in everyone's financial well-being, but it can also signify high inflation and have negative tax implications for cash-strapped retirees.
Read on for more information about the adjustment and how it might translate into a more stress-free retirement.
Steal this billionaire wealth-building technique
The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.
A new company called Masterworks allows everyday investors to buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.
If you have at least $10k to invest, see what Masterworks has on offer. (Hurry, they often sell out!)
Updated expectations
/images/2024/06/26/money-in-the-wallet-adobe.jpg)
The Senior Citizens League has updated its COLA expectations for 2025 and anticipates a 2.57% increase following a better-than-expected inflation reading in May. While this is slightly lower than the previous estimate of 2.66%, a lower number represents a positive adjustment for retirees — here's why.
The inflation challenge
/images/2023/12/06/definition_of_inflation.jpg)
High inflation has eroded the purchasing power of Social Security benefits. Retirees who started receiving benefits in 2000 have lost 36% of their buying power due to inflation outpacing their benefit increases.
Benefits of low inflation
/images/2024/06/27/holding-shopping-cart-while-shopping.jpg)
Low and stable inflation is beneficial for Social Security recipients. Historical data shows that buying power improves when COLA is less than 3%. Since 2010, there has been a 13% cumulative increase in purchasing power when COLA was under 2%.
Get a protection plan on all your appliances
Did you know if your air conditioner stops working, your homeowner’s insurance won’t cover it? Same with plumbing, electrical issues, appliances, and more.
Whether or not you’re a new homeowner, a home warranty from Choice Home Warranty could pick up the slack where insurance falls short and protect you against surprise expenses. If a covered system in your home breaks, you can call their hotline 24/7 to get it repaired.
For a limited time, you can get your first month free with a Single Payment home warranty plan.
Tax implications
/images/2024/04/21/managing-bank-finances-calculating-taxes.jpg)
Plus, higher COLAs can lead to higher taxes on Social Security benefits. As benefits increase, more retirees may find their benefits taxable, reducing their net income since there's no inflation adjustment built into the law. Lower COLAs can help keep more benefits tax-free, easing the tax burden on retirees.
The Fed's stance
/images/2023/03/09/federal-reserve-facade-from-outside.jpeg)
The Federal Reserve remains cautious about inflation, which could influence future COLA estimates. Although May's CPI numbers were encouraging, inflation is still above the Fed's 2% target, keeping the outlook for COLA uncertain.
Bottom line
/images/2022/09/30/retirees-planning-retirement.jpg)
A lower COLA for 2025 is a positive development for retirees. While you'll still receive a higher Social Security check, it also means better overall purchasing power and potentially lower tax liabilities.
This adjustment can provide much-needed financial relief and stability for those who depend on Social Security, helping them to better cope with the rising cost of living. Retirees should view this potential increase, however slight, as a welcome boost to their financial security in the coming year.
More from FinanceBuzz:
- 7 things to do if you’re barely scraping by financially.
- Are you a homeowner? Get a protection plan on all your appliances.
- 10 little weird hacks Costco shoppers should know.
- Learn how to escape the paycheck-to-paycheck grind.
- Huge discounts on travel, groceries, prescriptions and more
- Access to financial planning resources and health tools
- Join AARP and get 25% off your first year
Subscribe Today
Learn how to make an extra $200
Get vetted side hustles and proven ways to earn extra cash sent to your inbox.