Personal Finance

Social Security cost-of-living adjustment may be 2.6% in 2025: estimate

Published

5 months ago

August 14, 2024

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Even as new government inflation data shows inflation subsiding, many retirees are still struggling under the weight of higher costs.

Next year’s Social Security cost-of-living adjustment, or COLA, may not provide much relief.

In 2025, the Social Security COLA may be 2.6%, according to Mary Johnson, an independent Social Security and Medicare policy analyst.

That’s down from the 3.2% boost to benefits Americans saw in 2024. It’s also substantially lower than the 8.7% COLA Social Security beneficiaries received in 2023, and the 5.9% increase for 2022.

The prospective Social Security COLA for 2025 would be the lowest since 2021 but in line with the average cost-of-living adjustments for the past two decades, according to Johnson.

The estimate for 2025 is still subject to change. The annual Social Security cost-of-living adjustment is calculated based on 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.

The size of the official increase may change as new CPI data comes in.

The Social Security Administration typically announces the COLA for the following year in October.

Older Americans feeling ‘lingering effects’ of high costs

More than half of adults ages 50 and up — 61% — worry they will not have enough money to support them in retirement, according to a recent AARP survey.

Inflation is also a persistent concern for those older Americans, with 37% worried about covering basic expenses such as food and housing. Meanwhile, 70% are worried about prices rising faster than their incomes.

High inflation tends to hurt retirees more than near-retirees, since retirees’ income is less likely to go up as prices rise, according to the Center for Retirement Research at Boston College.

Social Security benefits — which are adjusted annually for inflation — are an exception.

However, some experts argue the annual increases to benefits have fallen short.

The average Social Security benefit has lost 20% of its buying power since 2010, according to recent research from the Senior Citizens League, a nonpartisan senior group.

Today’s average monthly benefit for retired workers would have to increase from $1,860 to $2,230 — nearly 20% — to keep pace with 2010 buying power, the group’s research found.

Another measure for the cost-of-living adjustment — the Consumer Price Index for the Elderly, or CPI-E — may better reflect the costs retirees face, advocates including the Senior Citizens League have said.

However, not all experts agree the cost-of-living adjustment measure should be changed.

While the annual adjustments are now calculated using a backward-looking method, they tend to fully compensate for inflation over time, Alicia Munnell, director of the Center for Retirement Research at Boston College, previously told CNBC.com.

Though the CPI-E has previously risen faster than the currently used measure for the cost-of-living adjustments, that gap narrowed in recent years, research from the Center for Retirement Research found. Consequently, switching to the CPI-E may not be the most effective move, the authors argued.

Personal Finance

Why your paycheck is slightly bigger

Published

1 hour ago

January 7, 2025

Business Finance News

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Why your take-home pay could be higher

If you’re starting 2025 with similar wages to 2024, your take-home pay — or compensation after taxes and benefit deductions — could be a little higher, depending on your withholdings, according to Long.

“When all the tax brackets go up, but your salary stays the same, relatively, that puts you on a lower rung of the ladder,” he said.

The federal income tax brackets show how much you owe on each part of your “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

“Even if you make a little more than last year, you could actually pay less in tax in 2025 compared to 2024,” because the standard deduction also increased, Long said.

For 2025, the standard deduction increases to $30,000 for married couples filing jointly, up from $29,200 in 2024. The tax break is also larger for single filers, who can claim $15,000 in 2025, a bump from $14,600.

‘It ends up nearly balancing out’

Despite tax bracket changes, many Americans won’t feel the pay increase amid elevated prices for certain expenses, said Sheneya Wilson, a CPA and founder of Fola Financial in New York.

“It ends up nearly balancing out,” she said.

While inflation is no longer accelerating, there was an uptick in the cost of groceries, gasoline and new cars in November, according to the Bureau of Labor Statistics.

Whether take-home pay is higher or lower than expected, it’s important to monitor your state and federal income tax withholdings throughout the year, especially during major income or life changes, Wilson said.

Typically, if you withhold too much from your paycheck, you can expect a refund, whereas not withholding enough often results in taxes owed.

Personal Finance

Student loan payments could lead to a tax break

Published

2 hours ago

January 7, 2025

Business Finance News

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There’s one upside to your student loan payments: They might reduce your 2024 tax bill.

The student loan interest deduction allows qualifying borrowers to deduct up to $2,500 a year in interest paid on eligible private or federal education debt. Before the Covid pandemic, nearly 13 million taxpayers took advantage of the deduction, according to higher education expert Mark Kantrowitz.

Most borrowers couldn’t claim the deduction on federal student loans during the pandemic-era pause on student loan bills, which spanned from March 2020 to October 2023. With interest rates on those debts temporarily set to zero, there was no interest accruing for borrowers to claim.

But interest on federal student loans began accruing again in September of 2023, and the first post-pause payments were due in October of that year.

By now, borrowers could again have interest to claim for the full tax year’s worth of payments, experts said.

“All borrowers should explore whether they qualify for the deduction as it can reduce their tax liability,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps borrowers navigate the repayment of their debt.

Student loan interest deduction worth up to $550

The student loan interest deduction is “above the line,” meaning you don’t need to itemize your taxes to claim it.

Your lender or student loan servicer reports your interest payments for the tax year to the IRS on a tax form called a 1098-E, and should provide you with a copy, too.

If you don’t receive the form, you should be able to get it from your servicer.

Depending on your tax bracket and how much interest you paid, the student loan interest deduction could be worth up to $550 a year, Kantrowitz said.

There are income limits, however. For 2024, the deduction starts to phase out for individuals with a modified adjusted gross income of $80,000, and those with a MAGI of $95,000 or more are not eligible at all. For married couples filing jointly, the phaseout begins at $165,000, and those with a MAGI of $195,000 or more are ineligible.

Personal Finance

Op-ed: Here’s why estate planning is a gift for your family

Published

6 hours ago

January 7, 2025

Business Finance News

Estate planning isn’t about focusing on your demise, one advisor says; it’s about taking control and making decisions that ensure your loved ones are cared for.