Unexpected Changes to Social Security Benefits – Retirees’ Payments Will Differ After This Date

Social Security has been a reliable source of retirement income for over eight decades. However, even after all these years, the program’s rules are not set in stone. Each year brings potential adjustments that can impact beneficiaries, and 2025 is expected to be no different. Although no official announcements have been made yet, it’s wise to prepare for some changes that could significantly affect your benefits. Here’s what to keep an eye on.

COLA

Each year, Social Security beneficiaries receive a cost-of-living adjustment (COLA) to help them keep up with inflation. For many seniors, Social Security is their main or only source of income, so these adjustments are crucial to maintaining their standard of living. In 2024, beneficiaries saw a 3.2% increase in their benefits due to COLA.

However, the outlook for 2025 isn’t as optimistic. The COLA for next year is projected to be 2.63%, which is lower than this year’s adjustment. While this number could change when the final inflation statistics for the third quarter of 2024 are analyzed, the increase is not expected to be substantial. Seniors might find that this smaller boost isn’t enough to cover rising living costs. As a result, they may need to consider alternative ways to supplement their income, such as taking on part-time work. Fortunately, earning additional income while receiving Social Security benefits is possible, but there could be changes on that front as well.

Earnings-Test Limits

Many people are unaware that it’s entirely possible to work while receiving Social Security benefits. Once you reach your full retirement age (FRA), which varies based on your birth year, you can earn any amount of money without having your Social Security benefits reduced. But if you are under FRA, there is an earnings test limit.

For 2024, the earnings test limit is $22,320 for those under FRA all year. If you exceed this limit, some of your Social Security benefits will be temporarily withheld, though they will be added back once you reach FRA. If you turn FRA during 2024, the earnings test limit is much higher at $59,520.

In 2025, these earnings test limits are expected to rise due to inflation and wage growth. This means that if you are working while receiving benefits and are under FRA, you might be able to earn more without having your benefits withheld. Keeping an eye on these numbers will be important if you want to maximize your income while receiving Social Security.

Social Security Taxes

Social Security is funded primarily through payroll taxes, and there’s a cap on the amount of earnings subject to this tax. In 2024, that cap is set at $168,600, meaning that any earnings above this amount are not taxed for Social Security purposes. However, this cap is also expected to increase in 2025.

While the exact increase is not yet known, higher earners should prepare for the possibility of paying more in Social Security taxes next year. If you are concerned about how this might impact your finances, it’s a good idea to consult with a financial professional. Planning ahead can help you navigate these changes and make the most of your income.

As we approach the new year, it’s clear that changes to Social Security are on the horizon. While some of these changes may seem small, they can have a significant impact on your financial situation. Stay informed, and be prepared to adjust your financial plans as necessary.

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