From September onwards, many US retirees in Connecticut, Colorado, Montana, Minnesota, New Mexico, Rhode Island, Utah, Vermont, and West Virginia could start receiving smaller monthly Social Security checks, by up to $200, due to a tax hike these states will impose on the benefits. The remaining 41 states don't impose income taxes on Social Security benefits. Nearly 40% of Social Security benefit recipients pay federal or state taxes on their checks, primarily because they earn considerable income in addition to their Social Security payments. The new tax hike on Social Security benefits will be deducted from the recipients in these states when they file federal tax returns.
Millions Depend On Their Social Security Checks For Monthly Expenses
Over 66 million people received Social Security checks in January 2024, where the monthly average payment estimated by the Social Security Administration (SSA) was $1,907. The low pay could be attributed to more people retiring early, citing health issues and financial challenges. Meanwhile, new taxes could weigh heavy on retirees who rely on their Social Security for monthly expenses, given that the benefit makes up almost 90% of total family income for 25% of retirees aged 65 and above. The concerns of retirees around high living costs, market volatility, and inflation were further evident from a recent Schroders' Retirement Study that revealed only 4% of the survey respondents are living the retirement dream while one in three are concerned financial stress will impact their overall health.
Average Payout For Those Retiring At 70 Is $4,873 Vs. $2,710 at 62
While the amount you collect depends on your overall income and where you live, the age at which you will be availing the benefits will have the maximum influence on your final payout. For instance, the average monthly Social Security income for those who started collecting payments at age 62 was $2,710 in 2024 compared to the $3,822 for retirees withdrawing at the full retirement age (FRA). The FRA is 67 for individuals born after 1960. People delaying retirement beyond FRA receive a bigger Social Security check as the payout increases for every month of delay till age 70. This year, the average monthly check for Americans retiring at 70 was $4,873. While higher income implies more taxes, several states, like Colorado, are working to extend Social Security tax exemptions for qualifying seniors. Furthermore, Presidential candidate Donald Trump is also advocating for eradicating taxes on Social Security payments and worker tips.
COLA For 2025 Expected To Be The Lowest In Years
The SSA offers Cost-of-Living Adjustments (COLA) to Social Security recipients to help them fight inflation. The COLA is calculated based on the change in the Consumer Price Index (CPI-W) in Q3 of the current year from the same quarter in the previous year. COLA for 2024 was 3.2%, based on the year-over-year inflation jump in Q3 2023. While SSA awaits September inflation data before officially announcing the 2025 COLA hike next month, it is estimated that the increase would be 2.5% based on inflation figures till August. If correct, it would mark the smallest COLA increase in three years, which could be attributed to cooling inflation and the US Federal Reserve's first rate cut since 2020 by 50 basis points.
