Social Security may be the biggest financial safety net for tens of millions of retirees across the U.S. As of October 2024, the Social Security Administration reported that about 72.8 million Americans receive a Social Security payment each month. Of those people, about 55.9 million are age 65 or older — that’s more than three-quarters of all Social Security recipients in the U.S.
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Additionally, the IRS reported the estimated average monthly Social Security retirement benefit as of January 2024 is about $1,907.
There’s no doubt retirees rely heavily on the Social Security system for financial stability in their golden years. However, three changes are coming to Social Security in 2025 that may affect your finances (especially if you’re still working), according to financial guru Suze Orman:
The 2025 Social Security COLA Is 2.5%
If you’ve already begun collecting your Social Security retirement benefit, your monthly payment will be 2.5% higher beginning in January 2025, thanks to the annual cost of living adjustment (COLA) which accounts for the current level of inflation. This is the smallest COLA to Social Security payments since 2021 when payments only increased by 1.3%. The 2025 COLA pales in comparison to the 2023 COLA which was 8.7%, reflecting the high inflation the U.S. experienced in 2022.
While it may seem that you’re not going to be getting as much of an increase next year as you have in the past two years, consider this smaller increase good news. It’s a positive sign that the economy is trending in the right direction, and that we’re no longer dealing with record interest rates and stubbornly high inflation.
Be sure to create a new budget for 2025 before the new year, which accounts for the smaller COLA increase. This way, you won’t be caught off guard when paying your bills and you can hopefully stay out of credit card debt.
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Your Benefits May Be Reduced if You’re Still Working
If you’ve already started collecting benefits, you haven’t reached full retirement age (otherwise known as FRA, which is 66 or 67 depending on the year you were born), and you’re still working, you may see your benefits temporarily reduced next year.
Benefits will be reduced by $1 for every $2 earned above the 2025 level of $23,400. If you’re already collecting benefits and you’ll reach FRA in 2025, you can earn up to $62,160 without having a benefit reduction.
It’s important to note that the temporary reduction in benefits as a result of earning over the set income level is temporary. Once you reach your FRA, there are no benefit reductions regardless of what you earn. Your benefit will be recalculated to account for what was withheld during the period you were collecting and younger than your FRA.
Taking on extra work in retirement is a smart idea to supplement your income. However, make sure to calculate how much more of your earnings may be withheld until you reach FRA so you don’t spend more than you can afford.
More of Your Earnings May Be Subject to Social Security Tax in 2025
If you’re still working, the amount of your earnings that are subject to the Social Security tax in 2025 is going up to $176,100. Any earnings above this level will not be subject to Social Security tax.
Be sure to check the laws in your state. Some states tax Social Security benefits up to a certain amount while others don’t, which may impact your total monthly benefit.
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This article originally appeared on GOBankingRates.com: Suze Orman: 3 Changes Coming to Social Security and How To Handle Them
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