The 2025 Cost of Living Adjustment (COLA) is just weeks away. Here are 2 things to watch for

The government will announce the 2025 cost of living adjustment (COLA) on October 10, 2024. While it’s not expected to be a big increase over the past few years, it’s still important for everyone who depends on Social Security. Security checks.

Here are two things to watch for once the COLA is announced so you can be as prepared as possible by 2025.

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1. How COLA will affect your checks

Social Security COLAs are percentages — for example, the 2024 COLA was 3.2%. So when the 2025 COLA comes around, it may not be immediately clear how much you’ll get in benefits each month. Fortunately, this is not too difficult to understand.

Technically, the Social Security Administration applies the COLA to your Primary Insurance Amount (PIA). This is the benefit you qualify for at full retirement age (FRA), which is between 66 and 67. For those who don’t apply to FRA, the government then does some additional calculations to adjust your benefits up or down based on your original claim age.

But adding the percentage to the current controls can give you a pretty good approximation. For example, say you’re getting a $2,000 monthly benefit right now, and your 2025 COLA comes in at 2.5 percent — the most recent projection, according to The Senior Citizens League (TSCL). An extra 2.5% on $2,000 is $50, which means you’ll get a new monthly benefit of $2,050 per month. This could be off by a dollar or two, but it should be pretty close.

If you don’t want to do this calculation on your own, the Social Security Administration will send you a personalized COLA notice in December that will list your exact benefit for 2025. You may be able to check this information earlier in a Social Security account .

2. Whether you will be at risk of owing taxes on Social Security benefits

The IRS taxes certain seniors’ Social Security benefits if their provisional income — calculated as adjusted gross income (AGI) plus any tax-free interest they earned on investments and half of their annual Social Security benefits — exceeds the following thresholds on their base. marital status:

Data source: Social Security Administration.

These thresholds are not indexed for inflation, meaning more seniors find themselves owing these benefits over time as their checks grow due to COLAs. This can lead to an unpleasant surprise at tax time.

It’s not too difficult to estimate half of your annual Social Security benefit, but the other aspects of provisional income may be foreign to non-tax professionals. You might consider signing up for one to help you estimate what you might owe in taxes on Social Security benefits next year so you can plan accordingly.

You should also know that nine states tax the Social Security benefits of some of their seniors. If you live in one of these places, you’ll want to know if you owe the state a portion of your paychecks as well.

Putting it together

Once you know roughly how much you’ll get from Social Security next year, minus benefits taxes, if that applies to you, you can plan the rest of your budget for 2025. You’ll need to cover your remaining expenses from other sources, such as income from a job or personal savings.

You may have to cover more expenses next year than you did this year. Some experts argue that COLA doesn’t do enough to help Social Security benefits keep up with inflation, but the only way to fix that is through a government amendment to the program.

However, making a plan as soon as the government announces the 2025 COLA will give you the most time to assess your budget for the coming year.