What to know about this year's Social Security cost-of-living adjustment
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[October 11, 2024] By
ADRIANA MORGA AND CORA LEWIS
NEW YORK (AP) — Tens of millions of older Americans will see an increase
in benefits this January when a new cost-of-living adjustment is added
to Social Security payments.
The 2.5% raise is intended to help meet higher prices for food, fuel,
and other goods and services. The average recipient will see an increase
of about $50 per month, according to agency officials. Social Security
recipients received a 3.2% increase in their benefits in 2024, and some
retirees are concerned that this year's increase is not big enough to
meet their needs.
The Social Security Administration will begin notifying recipients about
their new benefit amount by mail starting in early December. Adjusted
payments to nearly 7.5 million people receiving Supplemental Security
Income will begin on December 31. Supplemental Security Income provides
monthly payments to adults and children who have income below specific
financial limits and qualify to receive Social Security benefits.
Here’s what to keep in mind:
How does Social Security work?
About 72.5 million people, including retirees, disabled people and
children, get Social Security benefits.
The program is funded by taxes on income subject to Social Security
payroll taxes. The government uses taxes from working people to pay
benefits to people who have already retired, people who are disabled,
the survivors of workers who have died, and dependents of beneficiaries.
In 2025, the Social Security payroll tax will be assessed on the first
$176,100 of income, up from $168,600 this year
While the money is used to pay people currently receiving benefits, any
unused money goes to the Social Security trust fund. Some of the money
in the trust, together with the Social Security contributions of people
in the workforce, pays for future benefits.
To determine what amount of Social Security you’ll receive, the
government calculates a percentage of your highest wages from your top
35 years of earning, factoring in when you choose to start receiving
benefits.
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An elderly couple walks down a hall on Nov. 6, 2015 in Easton, Pa.
(AP Photo/Matt Rourke, File)
How is the cost of living
adjustment calculated?
The COLA is calculated according to the Bureau of Labor Statistics’
Consumer Price Index, but there are calls to use a different index —
one that measures price changes based on the spending patterns of
the elderly — like healthcare, food and medicine costs.
The smaller increase for 2025 is because inflation is slowing. That
means prices aren't increasing as fast as they were at the height of
the COVID pandemic. Recipients got a historically large 8.7% benefit
increase in 2023 because of record high inflation.
Is the trust running out of money?
Future problems with the fund have long been predicted, largely
because of demographic shifts. As birthrates decline, fewer people
become workers, which results in fewer payments of payroll taxes.
Meanwhile, more Baby Boomers are retiring and collecting Social
Security.
The annual Social Security and Medicare trustees report released in
May said the program’s trust fund will be unable to pay full
benefits beginning in 2035. If the trust fund is depleted, the
government will be able to pay only 83% of scheduled benefits, the
report said.
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