With the new year around the corner, retirees are anxiously waiting to see what changes Social Security has in store for them. Financial planning can be greatly affected by any changes in the program since millions of Americans rely on the program to enhance their income. In 2025, two catalysts could turn the financial tables to the positive side with the knowledge and corresponding actions taken on the changes. Here is all you need to take advantage of these changes.
1. Social Security COLA Increase in 2025: How much will benefits rise?
Annually, seniors who rely on Social Security can expect a cost-of-living adjustment (COLA) which is influenced by inflation indices. This adjustment is very important especially for older people because it enables them to continue buying goods and services even when prices go up. 2024 encountered a COLA increase of 3.2%, while the newly announced 2025 is lower.
The SSA has announced the COLA adjustment for 2025 due to the current inflation rate. Regardless of the rate of increase, it will still translate into a substantive increase in your monthly social security benefits.
Why is this important?
Even though 2.5% may seem minor, it will add up over time. For instance, if you are currently receiving $1,800 per month, a 2.5% increase would translate to an extra $45 per month or $540 per year. While it might not cover every expense, it will provide you with a little more financial breathing room in 2025.
2. Changes to the Earnings Test Limit in 2025: Work more without penalty
The issue of what amount of work can be done while still collecting Social Security benefits is one of the greatest problems that retirees encounter. If you are on benefits but have not attained the full retirement age (depending on your date of birth) yet, there is what is called the earnings test. This implies that if one earns over a certain threshold, some Social Security benefits will be lost. But 2025 presents more positive changes in this regard.
It is projected that the earnings-test limits will increase in 2025. For instance, in 2024 the limit was $22,320 for anyone who is below full retirement age, and $59,520 for those who will turn full retirement age in the year but not for the entire year. In 2025, those thresholds will be increased with inflation allowing you to work and earn without fear of losing their benefits.
Why does this matter?
If you plan to work while receiving Social Security, a higher earnings-test limit means you can bring home more income before your benefits are affected. This is particularly helpful for individuals who need or want to supplement their Social Security payments by working part-time or pursuing freelance work. Higher limits will reduce the likelihood of benefits being withheld.
How to Prepare
If you are still below full retirement age and are working or considering returning to work, keep an eye out for the updated earnings-test limits. Calculate how much you can safely earn without impacting your Social Security checks. By staying below the threshold, you can maximize your total income from both employment and Social Security benefits.
Additional tips to maximize your Social Security benefits in 2025
Aside from those two primary alterations, the COLA hikes and the earnings-test threshold, there are also other avenues that can guarantee that you are maximizing your Social Security advantages.
Here are a number of such reminders:
- Delay the claiming of benefits: If you are financially stable, delaying a bit for your Social Security payments after the full retirement age has passed will make sure that you are paid more later.
- Check your earnings record: Verify that your earnings history is correct, because the benefit calculation is based on the highest 35 years of your earnings.
- Think about the spousal support: If you happen to be married, then you may qualify for spousal support, thereby increasing your total monthly income.
SEE WHAT’S NEW:
The fourth Social Security payment is ready: Who will receive up to $4,873 on October 23?
