As inflation remains high and economic conditions continue to shift across the U.S., retirees in several states are seeing their Social Security income lose more of its value than others.
Despite annual cost-of-living adjustments (COLA) designed to help offset rising expenses, those living in certain areas are still falling behind due to higher local costs, taxation, and reduced purchasing power.
Rising Costs, Flat Benefits
The Social Security Administration adjusts benefits annually to account for inflation. In 2024, a 3.2% COLA increase was applied, adding around $50 to the average monthly check. But for retirees in states where costs are outpacing national averages, that increase hasn’t made a meaningful difference.
States with high housing costs, expensive healthcare, and taxes on Social Security income are hitting retirees especially hard. In some cases, retirees are effectively losing money as their checks don’t stretch far enough to cover their basic needs.
States Where Retirees Are Losing the Most
Here are some of the states where retirees are seeing their Social Security checks lose the most value due to a combination of high taxes, inflated living costs, and other factors:
| State | Key Issue | Tax on SS Benefits? |
| California | High cost of housing & healthcare | No |
| New York | Expensive utilities & property tax | No |
| Minnesota | Taxes part of SS income | Yes |
| Vermont | High income & property taxes | Yes |
| Connecticut | Costly medical and assisted living | Yes (income-based) |
While states like California and New York don’t tax Social Security directly, their sky-high cost of living can drain retiree budgets quickly. On the other hand, states like Minnesota and Vermont not only come with high living expenses, but also directly reduce retirement income through taxation on Social Security benefits.
How Taxation Reduces Retirement Security
Most states do not tax Social Security income, but 11 states still do—either partially or fully—depending on income brackets. For middle-income seniors in these states, the tax bill can eat into their fixed retirement income, forcing them to dip into savings or rely on assistance.
For example, in Minnesota, a married couple receiving $3,000 a month in combined Social Security may be taxed on up to 85% of their benefit if their total income exceeds a certain threshold. That added tax burden can amount to hundreds or even thousands of dollars a year.
Rising Rent, Food, and Healthcare Costs
It’s not just taxes hurting retirees—it’s also the soaring cost of basic necessities. In urban areas across California, New York, and other high-cost states, rent alone can eat up over 50% of a retiree’s monthly benefit. Meanwhile, groceries and out-of-pocket medical expenses are up significantly nationwide, disproportionately affecting those on fixed incomes.
In addition, many retirees are delaying necessary medical treatment or downsizing to less safe or accessible housing just to stay afloat.
Are COLA Increases Enough?
While COLA adjustments are meant to preserve retirees’ purchasing power, critics say they are based on outdated formulas that don’t reflect the true spending habits of older Americans. The COLA is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which doesn’t specifically track senior expenses like medical care or prescription drugs—two of the fastest-rising costs for retirees.
As a result, even with modest increases year to year, Social Security benefits are not keeping pace with real-world expenses for older adults.
What Can Retirees Do?
Those living in high-cost or high-tax states have a few options to better manage their finances:
- Consider relocating to tax-friendly or lower-cost states like Florida, Tennessee, or Arizona.
- Apply for local or state-level assistance programs to help with utilities, food, or property tax relief.
- Meet with a financial planner to adjust investment strategies or find ways to minimize taxable income.
- Explore Medicare Advantage or supplemental plans to reduce out-of-pocket medical expenses.
Final Thoughts
While Social Security was never meant to be the sole source of retirement income, it remains a lifeline for millions of seniors. Unfortunately, retirees in certain states are seeing that lifelinesare stretched thinner than ever due to taxes, inflation, and rising living costs.
Without legislative changes to how benefits are taxed and adjusted, the gap between Social Security income and basic expenses may continue to grow—leaving many seniors struggling to make ends meet.
