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Yahoo
25-06-2025
- Business
- Yahoo
Social Security: This Hidden Threat Could Cost the Average Retiree $4,440 Per Year
Social Security is vital for millions of Americans, but it's facing some major challenges. Loss of buying power could cost retirees thousands of dollars per year, and the faltering trust funds could also lead to benefit cuts. No matter what happens, it's wise to start preparing now. The $23,760 Social Security bonus most retirees completely overlook › Social Security keeps around 16 million seniors out of poverty each year, according to 2023 data from the nonpartisan Center on Budget and Policy Priorities, making it a crucial lifeline for many Americans. However, the program isn't as strong as it once was. Uncertainty surrounding potential benefit cuts could throw a wrench in some people's plans, and there's another hidden threat that could cost the average retiree more than $4,000 per year: the drastic loss of buying power. Social Security is designed so that, in theory, it should keep up with rising costs over time. The annual cost-of-living adjustments (COLAs) aim to help benefits maintain their buying power, with retirees receiving yearly raises to help combat inflation. But in the last couple of decades, those COLAs haven't been enough. Social Security has lost around 20% of its buying power since 2010, according to a 2024 report from nonpartisan advocacy group The Senior Citizens League. The report found that, at the time of publishing, the average retired worker received around $1,860 per month in benefits. But if benefits had maintained their buying power, that average should have been around $2,230 per month. That's a difference of $370 per month, or $4,440 per year. This loss of purchasing power appears to have been worsening in recent years, too. The report found that between 2010 and 2024, there have only been five years in which the COLA outpaced the inflation rate for that year. Between 2020 and 2024, just one COLA managed to beat inflation. Social Security isn't going as far as it used to even a decade ago, and if this trend continues, it may be more difficult or even impossible for the average retiree to survive on their benefits. Even more concerning is the possibility of benefit cuts, which could be coming sooner than expected. According to the Social Security Board of Trustees' 2025 report on the state of the program, the two trust funds are expected to run out by 2034 -- one year sooner than estimated last year. Also, once those funds are depleted, the program's income sources are only expected to cover around 81% of scheduled benefits -- which is also down from 83% last year. This means that by 2034, benefits could potentially be slashed by around 19%. To be clear, this doesn't mean that cuts are guaranteed to happen. Lawmakers could find a solution before 2034 to avoid cuts and potentially even help Social Security regain its lost buying power. However, until that plan is in place, it may be a good idea to develop a backup plan. If you're not yet retired, increasing your savings even slightly can help reduce your dependence on Social Security. Investing $200 per month at an 8% average annual return can amount to close to $35,000 after a decade. For the average retiree, that's equal to roughly 18 months' worth of benefits. Delaying claiming benefits is another option. The average retiree collects around $807 more per month at age 70 than at 62, according to 2024 data from the Social Security Administration. Even if you can only delay benefits by a year or two, that could boost your payments enough that potential cuts and loss of buying power won't sting quite so much. Social Security may be facing challenges, but that doesn't mean it's going away entirely. Even if the trust funds run out and benefits lose more buying power, retirees can still rely on their payments to some extent. That said, by taking steps now to reduce your dependence on your benefits, you'll be more prepared no matter what the future may hold. If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Social Security: This Hidden Threat Could Cost the Average Retiree $4,440 Per Year was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNBC
11-06-2025
- Business
- CNBC
Social Security cost-of-living adjustment may be 2.5% in 2026, new estimates find
Millions of Social Security beneficiaries received a 2.5% boost to their benefits in 2025, thanks to an annual cost-of-living adjustment that went into effect in January. In 2026, Social Security checks may go up by the same amount — 2.5% — based on the latest government inflation data, according to new estimates from both The Senior Citizens League and Mary Johnson, an independent Social Security and Medicare policy analyst. That is up from the 2.4% increase for 2026 that those sources forecast last month. A 2.5% cost-of-living adjustment would be "about average," according to Johnson. The Social Security cost-of-living adjustment, or COLA, is an annual adjustment to benefits aimed at helping to ensure monthly checks keep pace with inflation. The COLA for the following year is calculated based on third quarter inflation data. The official change is typically announced by the Social Security Administration in October. With four more months of data yet to come before that calculation, the new estimate for the Social Security COLA for 2026 is subject to change. The COLA may go higher if President Donald Trump's tariff policies prompt inflation and consumer prices move higher, according to Johnson. Broadly, the consumer price index rose less than had been expected in May, with an annual inflation rate of 2.4%, showing limited impact from Trump's tariff policies. The measure used to calculate the Social Security COLA — the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W — is up 2.2% over the past 12 months, according to the May data. While that inflation rate is lower than the 2.5% COLA for 2025, a Senior Citizens League survey finds 80% of seniors feel inflation in 2024 was more than 3% based on their expenses. As the Trump administration has reduced the size of the federal work force, that has also led to changes in the way the Bureau of Labor Statistics assesses inflation. The government agency has restricted data collection and turned to models that help fill in incomplete data. More from Personal Finance:Here's the inflation breakdown for May 2025 What's happening with unemployed Americans — in five chartsHow investors have performed amid Trump market volatility The Senior Citizens League has raised concerns that those changes may negatively influence the accuracy of the annual Social Security COLA calculations. "Inaccurate or unreliable data in the CPI dramatically increases the likelihood that seniors receive a COLA that's lower than actual inflation, which can cost seniors thousands of dollars over the course of their retirement," Shannon Benton, executive director at The Senior Citizens League, said in a statement. The Bureau of Labor Statistics did not immediately respond to CNBC's request for comment.
USA Today
29-05-2025
- Business
- USA Today
President Donald Trump's 'One, Big, Beautiful Bill' breaks a key Social Security promise
President Donald Trump's 'One, Big, Beautiful Bill' breaks a key Social Security promise The president's flagship tax and spending bill is missing a key proposal. And it may not be by accident. Show Caption Hide Caption Social Security uncertainty and policy changes are driving more people to file With a significant rise in Social Security applications, retirees face financial decisions influenced by legislation and economic concerns in today's climate. Scripps News For most Americans, Social Security income isn't a luxury — it's a foundational part of their financial well-being. More than two decades of annual surveys from national pollster Gallup have consistently found that between 80% and 90% of retirees lean on their Social Security check, to some degree, to cover their expenses. For the 52.6 million Americans currently receiving a retired-worker benefit, nothing is more important than knowing how much they'll receive monthly. Many of these retirees have come to realize that a Social Security dollar today isn't what it used to be. Due to inherent flaws in the inflationary index behind annual cost-of-living adjustments (COLAs), the purchasing power of Social Security income has declined by 20% since 2010, based on a July 2024 analysis from nonpartisan senior advocacy group The Senior Citizens League (TSCL). In other words, retired-worker beneficiaries are eager for announcements and/or reforms that would lead to a beefier payout. While on the campaign trail last year, then-candidate Donald Trump announced in all-capital letters on his social media platform Truth Social, "Seniors should not pay tax on Social Security." Now-President Trump doubled down on this claim in a fairly recent town hall event, proclaiming: In the coming weeks and months, we will pass the largest tax cuts in American history — and that will include no tax on tips, no tax on Social Security and no tax on overtime. It's called the 'One, Big, Beautiful Bill'. But there's just one problem with Trump's 'One, Big, Beautiful Bill' — it completely breaks his Social Security promise. Trump's 'One, Big, Beautiful Bill' is missing a key proposal The bill inspired by many of Donald Trump's campaign promises, which passed the House on Thursday, May 22 and is headed to the Senate, calls for an assortment of tax cuts and credits, as well as efficiency-based reductions. While this is far from a complete list of everything the 'One, Big, Beautiful Bill' aims to accomplish, the greater-than-1,000-page bill would: Permanently extend the personal tax cuts passed in the Tax Cuts and Jobs Act (TCJA) in 2017. While the peak marginal corporate income tax rate reduction from 35% to 21% is permanent, the personal tax cuts are currently on track to sunset by Dec. 31, 2025. Increase the deduction for state and local taxes (SALT) to $40,000 from the current limit of $10,000 that was imposed via the TCJA. Phase-outs exist for incomes over $500,000. Expand annual contribution limits for Health Savings Accounts (better known as HSAs) for low and middle earners. Exempt qualified tips (for those earning less than $160,000) from federal income tax through 2028. Allow low and middle earners aged 65 and above to deduct an additional $4,000 on their federal tax return, or $8,000 for couples filing jointly. Eliminate subsidies on federal student loans. Reduce spending on Medicaid and the Supplemental Nutrition Assistance Program by roughly $1 trillion. What's surprisingly missing in this extensive proposal is Trump's pledge to remove the tax on Social Security benefits. In its stead is a measure that would add $4,000 to the standard deduction for seniors aged 65 and older, or $8,000 for couples filing jointly. However, this additional deduction is only available to individuals and couples with respective modified adjusted gross incomes up to $75,000 and $150,000. The tax on Social Security benefits was part of the bipartisan Social Security Amendments of 1983. This last major overhaul of the program also gradually increased the payroll tax and full retirement age for working Americans. Starting in 1984, up to 50% of Social Security benefits could be subjected to the federal tax rate if provisional income (adjusted gross income + tax-free interest + one-half of Social Security benefits) exceeded $25,000 for single filers and $32,000 for couples filing jointly. A decade later, a second tax tier allowed up to 85% of benefits to be taxed at the federal rate when provisional income surpassed $34,000 and $44,000 for individuals and couples filing jointly, respectively. What makes this tax so hated is that these income thresholds haven't once been adjusted for inflation after four and three respective decades. What was once a tax aimed at roughly 10% of senior households now impacts about half of all retiree households. Based on the 'One, Big, Beautiful Bill', this disliked tax isn't going anywhere, which means the president has reneged on his Social Security promise to remove it. Two reasons Trump's efforts to remove the tax on Social Security benefits have been unsuccessful Make no mistake about it, Trump breaking his Social Security promise has nothing to do with popularity. An overwhelming percentage of seniors in an informal TSCL survey favored the idea of eliminating the taxation of Social Security benefits. The real issue for Donald Trump is that what's popular isn't always what's best, or feasible. One reason the president may have reneged on his Social Security promise is because of the financial implications of what he proposed. Although eliminating the tax on benefits would have boosted what around half of retired-worker beneficiaries would get to keep for a few years, it would have had disastrous effects on Social Security's financial health. In the 2024 Social Security Board of Trustees Report, the Trustees estimated the Old-Age and Survivors Insurance Trust Fund (OASI) would exhaust its asset reserves — i.e., the excess income built up since inception that's currently invested in interest-bearing government bonds — by 2033. Though asset reserves aren't required for the OASI's solvency, the depletion of these reserves would necessitate sweeping benefit cuts of up to 21% for retired workers and survivors. If President Trump had been successful in removing the tax on benefits, it would have ended one of the program's three sources of income and expedited the timeline to the OASI's asset reserve depletion. Further, there's a strong likelihood it would also increase the percentage benefits would need to be cut to sustain payouts over the next 75 years. The other issue for Trump is that it's unlikely he would have the necessary votes to remove the tax on benefits. Amending the Social Security Act requires 60 votes in the Senate. It's been 46 years since either party held a supermajority of 60 seats in the upper house, which means all legislation aimed at amending Social Security requires bipartisan support. Democrats and Republicans have found little common ground when amending Social Security since the Amendments of 1983 were signed into law. More than likely, none of the 45 Democrats and two Independent senators in the upper house would vote in favor of Trump's proposal. It's also not clear if all 53 Republicans would be on board with the president's call to eliminate the tax on benefits. Rather than risk a potentially embarrassing defeat or holding up the 'One, Big, Beautiful Bill', this Social Security promise was (likely) purposely left out. Regardless of the precise reason this proposal was shelved, taxing Social Security benefits, no matter how disliked or unpleasant, is a necessity for a social program facing the possibility of sweeping payout cuts in just eight years. The Motley Fool has a disclosure policy. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY. The $23,760 Social Security bonus most retirees completely overlook Offer from the Motley Fool: If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets"could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. JoinStock Advisorto learn more about these strategies. View the "Social Security secrets" »
Business Mayor
14-05-2025
- Business
- Business Mayor
Social Security cost-of-living adjustment for 2026 is projected to be lowest in recent years. Why that may change
Customers shop for produce at an H-E-B grocery store on Feb. 12, 2025 in Austin, Texas. Brandon Bell | Getty Images The Social Security cost-of-living adjustment for 2026 is on pace to be the lowest annual benefit increase in five years, according to new estimates. But that may change depending on the pace of inflation in the coming months. The COLA may be 2.4% in 2026, according to new projections from both Mary Johnson, an independent Social Security and Medicare policy analyst, and The Senior Citizens League, a nonpartisan senior group. If that increase goes into effect next year, it would be lower than the 2.5% boost to benefits Social Security beneficiaries saw in 2025. It would also be the lowest cost-of-living adjustment since 2021, when a 1.3% increase went into effect. More from Personal Finance: Here's the inflation breakdown for April 2025 — in one chart Ways to save on groceries amid food price inflation How to land a new job in a 'low firing, low hiring' market The Social Security COLA provides an annual inflation adjustment to all of the program's beneficiaries, including retirees, disabled individuals and family members. The annual adjustment for the next year is calculated by comparing third-quarter inflation data for the current year to the previous year. The year-over-year difference determines the annual increase. However, if there is no rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from year to year, the COLA may be zero. The CPI-W, used to calculate Social Security's COLA, increased by 2.1% over the past 12 months, according to data released Tuesday by the Bureau of Labor Statistics. In the months ahead, two factors may affect retirees' cost of living, experts say. Tariffs may push inflation higher Inflation, as measured by the broader consumer price index, sank to its lowest 12-month rate at 2.3% in April since 2021. Yet tariffs may push the inflation rate higher in the months ahead, if those taxes imposed on imported goods go into effect. Tariffs would prompt higher consumer prices and inflation. If that happens in the months ahead, the Social Security cost-of-living adjustment estimate for 2026 may move higher. 'This year will be a closer year to watch because of the tariffs,' Johnson said of the 2026 COLA estimate, which is recalculated every month with new inflation data. The official COLA for the following year is typically announced by the Social Security Administration in October. Prescription drug costs President Donald Trump on Monday issued an executive order taking aim at high prescription drug costs in the U.S. The White House hopes to bring those prices in line with other countries. The policy would apply to Medicare and Medicaid, in addition to the commercial market, according to the White House. Changing drug prices would be unlikely to impact the COLA estimate, according to Johnson. But retirees would see an impact to their personal budgets if drug prices came down, she said. Many details of the executive order still need to be fleshed out, noted Leigh Purvis, prescription drug policy principal at the AARP Public Policy Institute. Yet the nonprofit organization, which represents Americans ages 50 and up, praised the Trump administration's efforts to curb big drug companies' ability to charge retirees high prices for necessary prescriptions. 'A lot of people are aware that prescription drug prices are too high, and I think a lot of people are aware that we're paying a lot more than other countries,' Purvis said. 'So any efforts moving us in the direction of paying less and paying something that's more comparable to the rest of the world, I think is something that people could probably get behind,' she said. READ SOURCE
CNBC
13-05-2025
- Business
- CNBC
Social Security cost-of-living adjustment for 2026 is projected to be lowest in recent years. Why that may change
The Social Security cost-of-living adjustment for 2026 is on pace to be the lowest annual benefit increase in five years, according to new estimates. But that may change depending on the pace of inflation in the coming months. The 2026 COLA may be 2.4% in 2026, according to new projections from both Mary Johnson, an independent Social Security and Medicare policy analyst, and The Senior Citizens League, a non-partisan senior group. If that increase goes into effect next year, it would be lower than the 2.5% boost to benefits Social Security beneficiaries saw in 2025. It would also be the lowest cost-of-living adjustment since 2021, when a 1.3% increase went into effect. More from Personal Finance:Here's the inflation breakdown for April 2025 — in one chartWays to save on groceries amid food price inflation How to land a new job in a 'low firing, low hiring' market The Social Security COLA provides an annual inflation adjustment to all of the program's beneficiaries, including retirees, disabled individuals and family members. The annual adjustment for the next year is calculated by comparing third quarter inflation data for the current year to the previous year. The year-over-year difference determines the annual increase. However, if there is no increase in the the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from year to year, the COLA may be zero. The CPI-W, used to calculate Social Security's COLA, increased by 2.1% over the past 12 months, according to data released Tuesday by the Bureau of Labor Statistics. In the months ahead, two factors may affect retirees' cost of living, experts say. Inflation, as measured by the broader Consumer Price Index, sank to its lowest 12-month rate at 2.3% in April since 2021. Yet tariffs may push the inflation rate higher in the months ahead, if those taxes imposed on imported goods go into effect. Tariffs would prompt higher consumer prices and inflation. If that happens in the months ahead, the Social Security cost-of-living adjustment estimate for 2026 may move higher. "This year will be a closer year to watch because of the tariffs," Johnson said of the 2026 COLA estimate, which is recalculated every month with new inflation data. The official COLA for the following year is typically announced by the Social Security Administration in October. President Donald Trump on May 12 issued an executive order taking aim at high prescription drug costs in the U.S. The White House hopes to bring those prices in line with other countries. The policy would apply to Medicare and Medicaid, in addition to the commercial market, according to the White House. Changing drug prices would be unlikely to impact the COLA estimate, according to Johnson. But retirees would see an impact to the personal budgets if drug prices came down, she said. Many details of the executive order still need to be fleshed out, noted Leigh Purvis, prescription drug policy principal at AARP Public Policy Institute. Yet the nonprofit organization, which represents Americans ages 50 and up, praised the Trump administration's efforts to curb big drug companies' ability to charge retirees high prices for necessary prescriptions. "A lot of people are aware that prescription drug prices are too high, and I think a lot of people are aware that we're paying a lot more than other countries," Purvis said. "So any efforts moving us in the direction of paying less and paying something that's more comparable to the rest of the world, I think is something that people could probably get behind," she said.
