Social Security beneficiaries could be in for their biggest raise in decades as inflation remains persistently high, according to the Senior Citizens League, a seniors advocacy group. A report by the group released earlier this week estimates a coming COLA of 8.7%, the biggest cost-of-living adjustment since 1981 when it was 11.2%. That would raise the average monthly retiree benefit $144 to $1,800.

That large of an increase would surely be welcomed by the more than 50 million people who collect Social Security retirement benefits. This year, they’ve endured the fastest annual rate of inflation since the early 1980s, recently peaking in June at 9.1%. The CPI-W, the inflation measure Social Security uses to calculate the annual COLA, has risen from 276.296 at the beginning of the year to 291.629 in August. That corresponds to a 5.5% increase in the cost of living with no commensurate increase in benefits.

However, the highest COLA in decades could be a double-edged sword for Social Security beneficiaries who don’t currently pay federal taxes on their benefits. No one earning less than $25,000 ($32,000 for couples) has their Social Security benefits taxed, but that threshold hasn’t changed since 1984. According to a Social Security report, less than 10% of beneficiaries paid any taxes on benefits in 1984 but by 2015 that number had increased to 52%. The mega-COLA to be announced in October could force a lot of recipients with far from exorbitant incomes to pay taxes on their retirement benefits for the first time ever in 2024.

-Colin

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