As a beneficiary of Social Security Disability Insurance (SSDI), you are probably aware that your payments also tend to fluctuate every year because of annual Cost-of-Living Adjustments (COLA). Considering the easing inflationary trends, it is anticipated that the upward revision of your benefits for the year 2025 will be quite modest as compared to the preceding years; however, it is still envisaged to augment your earnings.
What is COLA, and Why Does It Matter?
COLA is an abbreviation for a Cost-of-Living Adjustment. This means that areas such as Social Security and SSDI benefits, which are provided annually, are increased every year in order to match the inflation levels. Annually, the adjustment is made on the basis of the information in the third quarter of the year regarding changes in the CPI-W; the Consumer Price Index of Urban Wage Earners and Clerical Workers. This index goes on to determine the changes in the prices of goods and services, and therefore affects the yearly amount approved for SSDI.
Several changes in the economy in the last few years have seen most of these adjustments brought about by the introduction of cost-of-living adjustments (COLA) be the highest ever. In the year 2023, there was an 8.7% increase for SSDI and Social Security beneficiaries as this being the highest increase in more than 40 years. For the year 2024, the increase was moderate at about 3.2%. But now, for the year 2025, the estimates suggest that it may increase by 2.5% — understandably positive, but bearing a great deal lower than previous years.
How Much Will the 2025 COLA Increase Be?
As per the latest estimates, it is possible that SSDI recipients may experience a 2.5% COLA in the year 2025. This figure is less than the past couple of years, but it is more in line with historical data. For a typical SSDI beneficiary, a 2.5% increase would mean around $96 more in a given month, depending on benefits currently being received.
For instance, let’s say you receive $1,800 SSDI benefits a month, and there is a 2.5% increase, that website tells you that you will get added $45, making the total $1,845. Considering the circumstances and the expectations set for the 2023 increase this amount may be modest, but every little helps at the end of the month when dealing with a limited budget.
Why the COLA is Smaller for 2025
Inflation has driven higher COLA increases in recent years, but as inflation has started to ease, so has the projected COLA for 2025. The expected 2.5% adjustment is closer to the average annual increase of around 2.6%. This figure may change slightly when the Social Security Administration (SSA) releases its final number in October 2024, as it will factor in updated inflation data for the third quarter of this year.
Taxes and Other Costs Impacting SSDI Payments
While the COLA adjustment can help SSDI recipients, there are two major factors that could affect how much extra money you actually receive — taxes and Medicare premiums.
Taxes on SSDI Benefits
Based on your combined income, you may be required to pay federal income tax on as much as 85% on your Social Security benefits. This could greatly affect the disposable income that you enjoy every month, especially for higher income earner beneficiaries. The other day, the former president Donald trump urged the inclusion of the taxes on Social Security benefits in taxation during his campaign. It is, however, apparent that his proposal will not be implemented anytime soon as it is very radical and presents ideas emphasizing how taxes will water down COLA increases.
Medicare Part B Premiums
Additionally, you should also take into account the premiums related to your Medicare Part B plan. A lot of people who receive SSDI have these premiums deducted from their Social Currents. Social Security Disability Insurance (SSDI) costs are increasing much faster than the Additional Benefits Received. This means that some of the extra money you receive since the COLA adjustment might go to pay for the additional Medicare costs.
Let us say that the increase in Medicare Part B premiums is around 5.5% each year, whereas the average cost of living adjustment is 2.6%. As time progresses, this difference implies that such premiums tend to affect the Social Security benefits more severely, narrowing the extent to which one benefits from the COLA increase.
Frequently Asked Questions
Will all SSDI beneficiaries get the $96 monthly increase in 2025?
The $96 figure is based on an estimate and your actual increase will depend on your current monthly benefit and the final COLA percentage, which the SSA will announce in October. Some recipients may see more, others less, but most will see a boost close to this amount.
Why is the COLA adjustment for 2025 lower than in 2023?
A: The 2023 COLA was unusually high due to a spike in inflation. As inflation cools, so does the COLA. The 2025 projection of 2.5% is closer to the historical average.
How will Medicare Part B premiums affect my increase?
A: If you have Medicare Part B, your premium increases may offset some of the extra money you receive from the COLA. Medicare premiums tend to rise faster than COLA adjustments.
Is there a chance the COLA estimate for 2025 could change?
A: Yes, the final COLA percentage will be announced in October 2024. It may increase or decrease slightly based on inflation data from the third quarter of 2024.
Can my SSDI payments be taxed?
Yes, depending on your total income, up to 85% of your SSDI benefits could be subject to federal income tax.
Conclusion
While the projected 2025 COLA increase of 2.5% may seem modest compared to the past two years, it still provides a helpful boost for SSDI beneficiaries. Keep in mind that taxes and Medicare premiums can impact how much extra money you actually receive. Be sure to stay updated on the official announcement from the Social Security Administration in October.
