Since it was first announced in October, the Social Security Cost of Living Adjustment (COLA) has caused a lot of trouble. There was a lot of silence when the 2.5% was lower than expected or wanted. Experts couldn’t agree on whether it was good or bad that it was so low.
The low increase is good news for retirees, according to many experts, including financial expert Suze Orman. She has shared her thoughts on why this is a good thing that should be praised.
She said, “A smaller inflation adjustment can feel disappointing because we all want more money to cover living expenses, but it’s actually good news because it means that basic costs aren’t going up as quickly as they were.”
If you compare this to the 8.7% change in 2023, you may be even more disappointed. But let’s remember that the inflation period in 2022 was terrible for the economy, and the goal for 2025 is to make things more stable for everyone, but especially for people on fixed incomes.
How Social Security’s COLA Benefits Retirees
People have different ideas about how Social Security benefits should work, but Orman reminds us that they are meant to help retirees live comfortably. However, they shouldn’t be their only source of income.
Benefits from Social Security are different from other ways to save, like IRAs and 401(k) plans, because they are meant to help people keep their purchasing power as the cost of living changes.
In his book, “Your IRA and 401(k) investments don’t offer any guarantees, let alone a baked-in adjustment for inflation,” Orman says.
You have a better chance of having enough money to live on if you wait to claim. However, many people worry that if they don’t claim right away, they will miss out on some increases, especially if it’s a high year.
Orman says that beneficiaries shouldn’t have to worry about that when they are working. If you wait to claim Social Security, your monthly benefits will go up, especially if you wait until you reach full retirement age or even age 70.
Orman says, “If you wait to start collecting until your full retirement age (between 66 and 67 years old, depending on your birth year) or until age 70, you will be entitled to a much larger benefit.”
He also says that you get the annual COLA adjustments even if you haven’t started taking benefits yet. “That’s one less reason for you to want to get a (reduced) Social Security benefit early.”
Working Beneficiaries and Income Limits
But some beneficiaries still choose to claim early in order to try to get a higher “salary” because they can do so while they are still working. For some, like those starting a new business that they don’t know much about, this might be a good idea.
However, most pensioners don’t think about the earnings limit that Social Security applies to people who are still working and haven’t reached full retirement age.
In 2025, beneficiaries younger than 65 will temporarily get less money from their benefits for every $2 they earn above $23,400. In 2025, when people reach full retirement age, the limit goes up to $62,160.
Orman made it clear that any benefits that are withheld because of this earnings test will only last for a short time. “Once you reach your full retirement age, what was taken out of your benefit is taken into account again,” Orman said. This means that benefits that were taken away are eventually given back through adjustments.
Social Security Wage Base Increase
In 2025, the most money that will be taxed by Social Security will go up to $176,100. This is something else that people who will receive benefits in the future should think about.
It is easier to plan for retirement when you know how much of your income will be taxed. This will also help you figure out how much you will get in benefits in the future.
Being aware of changes will make planning for retirement a lot easier, as Orman says.
Read Also :- New Social Security benefits for couples for 2025 – Checks will take a 180-degree turn
