Finance
Seniors to get moderate cost of living bump in Social Security payments next year
Moderating inflation means a smaller increase in Social Security payments. (iStock)
Social Security and Supplemental Security Income (SSI) benefits for more than 71 million Americans will increase by 2.5% in 2025, resulting in an additional $561 in Social Security income over the course of the year, according to the Social Security Administration (SSA).
Beneficiaries will see an extra $50 monthly starting in January, according to a recent SSA statement. Increased payments to approximately 7.5 million SSI recipients will begin on Dec. 31, 2024. Over the last decade, the cost of living adjustment (COLA) has increased by about 2.6%. The COLA was 3.2% in 2024. The Social Security COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The increase in 2024 will help millions of people keep up with expenses, even as inflation has moderated closer to the 2% target level set by the Federal Reserve, according to Martin O’Malley, Commissioner of Social Security. Still, the adjustment is lower than in previous years because of moderating inflation. Recipients received increases of 3.2% in 2024 and 8.7% in 2023, the most significant bump in payments since the early 1980s because of record-high inflation.
“Inflation took a financial toll this past year, particularly on retirees, who often rely on Social Security as a key source of income,” AARP Chief Executive Officer Jo Ann Jenkins said in a statement. “Even with this adjustment, we know many older Americans who rely on Social Security may find it hard to pay their bills. Social Security is the primary source of income for 40% of older Americans.”
However, Jenkins said that more needs to be done to strengthen Social Security and secure a long-term solution that Americans can rely on.
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Group calls for Senior CPI
Many Americans are deeply concerned about the impact of inflation on their retirement savings and their ability to make ends meet with Social Security retirement income. Social Security recipients have lost about 20% of their buying power since 2010, according to annual research by The Senior Citizens League (TSCL).
TSCL and seniors want Congress to start calculating COLA based on the Consumer Price Index for Americans 62 and older (CPI-E) instead of the CPI-W. CPI-E is generally higher than the CPI-W because it surveys the costs of retired households over 62 and more accurately accounts for how older Americans spend money. Older and disabled Social Security recipients spend a significant share of their incomes on housing and medical costs — two spending categories that tend to rise more quickly than overall inflation. The TSCL has also called on Congress to institute a minimum COLA of 3%.
“This year represents another lost opportunity to grant seniors the financial relief they deserve by changing the COLA calculation from the CPI-W to the CPI-E, which would better reflect seniors’ changing expenses,” TSCL Executive Director Shannon Benton said in a statement. “Seniors—and TSCL—demand that Congress takes immediate action to strengthen COLAs to ensure Americans can retire with dignity. Our research shows that 67% of seniors depend on Social Security for more than half their income and that 62% worry their retirement income won’t even cover essentials like groceries and medical bills.”
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Tax threshold increases
Another adjustment that will take effect in January is the portion of personal income subject to Social Security tax. That is expected to increase to $176,100 in 2025, up from $168,600 in 2024. This means recipients who earn over $178,100 in 2025 will have to pay the Social Security payroll tax on the amount of their income that exceeds that limit.
Unlike other parts of the federal income tax code, the income thresholds that subject Social Security benefits to taxation have never been adjusted for inflation. Consequently, as Social Security income increases due to COLAs, more retirees can reach the thresholds that trigger the tax on their Social Security benefits.
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Finance
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Egg prices keep soaring, but inflation is moving in the right direction. (iStock)
Consumer prices fell 0.1% in March, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS). This is the first monthly drop since July 2022.
Annual inflation increased 2.4% compared to a 2.8% increase registered in February. Core inflation, which excludes volatile energy and food prices, grew at a pace of 2.8% over the last year, the smallest 12-month increase since March 2021. A decline of 6.3% in gas prices more than offset increases in the indexes for electricity and natural gas. Food, however, rose 0.4% in March. The meats, poultry, fish and eggs index rose 7.9% over the last 12 months and the price of eggs alone jumped 60.4%.
Inflation continues to move towards the Federal Reserve’s 2% target rate. Still, the impact of President Donald Trump’s implementation of new tariff measures could derail this progress and hinder economic growth, according to Jim Baird, Plante Moran Financial Advisors’ chief investment officer.
“As consumers brace for the impact of tariffs on prices on a host of staples and discretionary goods, there’s considerable uncertainty on what that near-term magnitude of the impact will be for growth and inflation, although the direction for each is clearer,” Baird said. “That’s sent economists scrambling to update their forecasts to lower growth and increase expected inflation for the duration of the year.”
Despite concerns about the effects of President Trump’s tariffs, the Fed continues to hold interest rates steady, and it’s not expected to make any significant changes soon, including a potential rate cut. While tariffs could lead to higher inflation and slower economic growth, the Fed is waiting for more clarity on the full impact of these policies before deciding on any course of action.
If you are struggling with high inflation, consider taking out a personal loan to pay down debt at a lower interest rate, reducing your monthly payments. Visit Credible to find your personalized interest rate without affecting your credit score.
MORTGAGE RATES HIT A TWO-MONTH LOW THIS WEEK, REMAIN UNDER 7%
Recession risks increasing
President Trump’s tariffs are also contributing to an increased risk of recession. Several major financial institutions, including Goldman Sachs and J.P. Morgan, have raised their recession probabilities. According to Baird, part of the problem is that as prices rise due to tariffs, consumers may decide to curb their spending.
“Sentiment has soured in recent months, and there are already signs of not only a more cautious mood but more constrained spending,” Baird said. “Prices may rise, but that doesn’t mean that consumers will pay any price for any product. Some may grumble but continue to spend, but many are much more likely to trade down to cheaper alternatives or delay discretionary purchases.
“That reality raises the probability of a more notable slowdown in the pace of the economy, with the risk of recession also rising,” Baird continued.
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CALIFORNIA’S HOMEOWNERS INSURANCE INDUSTRY FACES ROUGH ROAD AHEAD AS WILDFIRES CONTINUE
Spring homebuying season looks promising
March shelter inflation data showed it dropped to 4.0% from 4.2% in February. That’s good news since shelter inflation has been a major force in keeping inflation elevated in recent years and could help move the needle on interest rates.
Mortgage rates continue to trend down, remaining under 7% for the twelfth consecutive week and could boost spring sales, according to Freddie Mac Chief Economist Sam Khater.
“As purchase applications continue to climb, the spring homebuying season is shaping up to look more favorable than last year,” Khater said.
The average 30-year fixed-rate mortgage was 6.62% for the week ending April 10, according to Freddie Mac’s latest Primary Mortgage Market Survey. That’s a decrease from the previous week, when it averaged 6.64% and lower than the 6.88% it was a year ago.
“Unfortunately, inflation remains painfully stubborn, well above the Fed’s 2% target for lowering rates,” said Gabe Abshire, Move Concierge CEO. “Considering the housing sector has lower exposure to the current global trade environment, it would be helpful for the Fed to lower rates and boost the Spring and Summer home buying market.”
If you want to become a homeowner, you can find your best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.
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A global trade slowdown tied to U.S. tariffs will likely create a more challenging environment for bond fund managers, according to financial futurist Dave Nadig.
“All of these capital holding requirements that led to buying U.S. Treasurys are kind of unwinding at the same time,” the former ETF.com CEO told CNBC’s “ETF Edge” on Wednesday. “So, the traditional math of things are bad for stocks, [and] everybody is going to buy bond just isn’t working out this time because the kind of shock we’re seeing is one we’ve never seen before.”
The benchmark 10-year Treasury Note yield increased to 4.4% on Thursday. The yield is up more than 10 percent just this week. Last Friday, it touched 3.86%.
Nadig thinks slowing trade will continue to impact market activity.
“When you have less trade, you need to finance less trade,” he said. “Historically, people have needed to finance dollars. That’s why every country in the world buys U.S. Treasurys. It helps them manage their international trade with the United States. So, if we’re slowing down the amount of international trade, we should expect in aggregate the holdings of bonds to probably come down.”
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