It is time to organize your finances as we land in the fall and prepare for the holidays. For retirees, they must stay informed about Social Security changes to help with planning. There are several significant modifications expected in 2025 that could affect your monthly payment. The most important one is the Cost-of-Living Adjustment (COLA), but you should also keep an eye on some other key changes.
New COLA for 2025
One of the biggest changes retirees may expect every year is the cost-of-living adjustment. For 2024, this COLA was seen at 3.2%, leading to an increase in the average monthly Social Security retirement benefit to $1,864.52. However, Kiplinger estimates that the projected COLA for 2025 will be lower, possibly around 2.57%. Although it might appear to be a slight drop, lower COLA can impact the expense management of retirees, especially with rising food prices and housing costs.
Here’s a breakdown of projected increases for different beneficiary categories in 2025:
- Retirees: An expected monthly increase of $49.87 bringing the payment up to $1,968.15.
- Retired couples: An increase of $99.75 taking their benefits to an average of $3936.31.
- Disability workers: A $39.98 increase bringing checks up to 1,577.68.
- Widowed beneficiaries: The forecasted increase of 46.39 will total 1830.48.
- Children of deceased workers who are supposed to receive a smaller boost of 28.73, which takes their benefit amount up to 1134.05.
Spousal Benefits Rule Ending
The cessation of the spousal benefits technique is one noteworthy adjustment in regulations for 2024 that will endure beyond 2025. The provision granted recipients the ability to interchange between their entitlements and those of a partner to optimize their payout. This policy was particularly advantageous for people born before January 1, 1954; however, retirees under this age limit can no longer use it. For partners who depended on this approach in the past, they must now be content with their independent payments, which might have consequences on their finances.
Higher payroll taxes for wealthy Americans
For 2024, the Social Security payroll tax limit increased from $160,200 to $168,600. This change affects those with higher earnings who will be taxed more for Social Security. This doesn’t directly affect retirement benefits but changes the amount of take-home pay among higher earners while lower ones remain unaffected.
This limit should increase again in 2025 as it is inflation-adjusted. If you earn more than the specified amount, think about preparing yourself for a larger tax return next year.
Changes to Overpayment Rules
The revision of the overpayment regulations by the Social Security Administration (SSA) is a welcome relief to those who may have been overpaid. It is only 10% or at least $10 that the SSA will collect from a recipient’s monthly benefit to recover an overpayment according to new guidelines. In the past, SSA had been withholding the whole amount paid for that particular month as long as one had not settled her/his debts. In addition, a longer repayment period of up to 60 months has now been introduced that ought to alleviate financial pressure on those affected.
If you suspect that you’ve received more than your due share, you can contest this ruling, and during that time, SSA won’t pursue the payment of such debts. A greater degree of flexibility in these new laws prevents abrupt money problems for individuals receiving social security benefits.
Full Retirement Age Moving Higher
We can see that the full retirement age (FRA), which is the age at which recipients are entitled to full social security benefits, continues to increase gradually. It will rise to 66 years and 10 months in 2025 for people who were born in 1959, while it is 67 years for those who were born in 1960 and after. Nevertheless, there have been talks of increasing FRA even more, possibly to 68 or even more, as longevity rates keep going up.
Final Thoughts
Millions of Americans continue to rely on Social Security for their survival, but that may change once 2025 arrives due to the modifications proposed. One must be aware of whether it is through a lesser cost-of-living adjustment (COLA), increased tax liabilities on wealthy people, or elimination of spousal benefits.
Through political shifts and changes in the economy, other significant reforms may be implemented as well. Keep watchful about these events since they hold implications for your retirement schemes and future benefits.
