The Social Security retirement benefit, in the United States, is a monthly check that covers part of the member’s monthly income when he reduces his working hours or stops working entirely. In this sense, starting in September, retirees in the United States will see a decrease in the amount of their Social Security benefits, due to income taxes in nine states, according to what the Social Security Administration (SSA) announced, based on state laws.
The cuts will have repercussions for pensioners residing in the states of Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia, where local tax laws impose different taxes on income received from Social Security.
Social Security: What do benefit cuts mean?
These cuts reflect a necessary adjustment that is due to the fiscal policies of each of the nine states that are committed. State income taxes can significantly reduce the total amount received by those who are already retired, which has led the SSA to implement these reductions to ensure the equity and sustainability of the system in the country.
The impact of these cuts will not be uniform for all retirees. Depending on the state of residence, tax rates, local cost of living and any additional benefits a retiree may be receiving, the adjustment in payments will vary. These factors combined will decide the exact reduction in each case, creating a different situation as to how retirees should adjust their personal budget.
The SSA also takes into account the Cost of Living Adjustment (COLA) made each year, which reflects changes in inflation. However, for retirees in the states involved, additional local taxes may offset any annual COLA increases, resulting in decreased purchasing power.
What Could Retirees Do in This Situation?
Faced with cuts, it is recommended that retirees evaluate their finances and consider adjustments to their budget. They should also stay informed about any new SSA announcements and consider new financial strategies that can help minimize the impact of cuts on their income. Evaluating options such as saving expenses or seeking additional income could be essential to maintain financial stability throughout this adjustment period that will negatively affect retirees.
Inflation Could Make the 2025 COLA Increase Lower
The 2025 Social Security COLA increment is projected to be between 2.5% and 3%, based on new inflation data, these estimates fall short of the current inflation rate, which raising concerns that the COLA may not fully reflect retirees’ actual living expenses, particularly in areas such as food, housing, and medical expenses.
The final COLA for 2025 will be determined in October, and current projections mark a significant gap between inflation and the proposed adjustment. The latest projections for the Social Security show that retirees are going to be far away from receiving that 3.2% applied in 2024, or the whooping 8.7% from 2023.
With the publication of new data regarding inflation, a revision of the estimates for next year’s COLA was made and it is important to understand what this means for beneficiaries. Based on inflation data that was recently released by the federal government in May, the Social Security COLA for 2025 could range between approximately 2.5 and 3%, so the Senior Citizens League projects that 2.5% COLA.
