Social Security remains a critical financial resource for millions of retired Americans, with over $1.5 trillion in benefits projected for 2024 alone. However, retirees should be aware of two major changes to Social Security coming in 2025 that could impact their benefits.
GoBankingRates.com recently wrote about the changes which are:
Smaller COLA Increase: The 2025 Cost of Living Adjustment (COLA) is expected to be only 2.7%, a drop from recent years due to lower inflation. Unfortunately, these adjustments often fall short of actual retiree expenses, further eroding purchasing power.
Later Full Retirement Age (FRA): For those nearing retirement, the FRA is set to increase. Individuals turning 66 in 2025 will need to wait until 66 and ten months to avoid early filing penalties. This change emphasizes the importance of strategic planning around benefit claims.
To offset these changes, retirees can prepare by building an emergency fund, reducing unnecessary expenses, and even considering a side hustle to boost their financial stability.
As Social Security celebrates its 89th birthday, there’s growing concern about its future. According to the latest report, the reserves that fund benefits for 70 million Americans could be depleted by 2035. If that happens, benefits might be cut by 17% and that has many retirees worried about their financial security.
Should You Take Social Security Early?
According to a Rodney Brooks article on SeniorPlanet.org, many people are choosing to start their Social Security benefits as early as 62, fearing the money won’t be there later. Remember that taking benefits early permanently reduces them by about 30%. For those who wait until full retirement age (66 or 67, depending on when you were born), or even until 70, benefits can increase significantly.
Unfortunately, the fear of losing out is driving some to claim early, even when it’s not in their best interest. If you’re in good health and you can afford to wait, delaying benefits could lead to a higher monthly check for the rest of your life.
What’s Congress Doing About It?
So far, Congress has not taken decisive action to address Social Security’s looming shortfall. Some proposed solutions include:
Raising the income cap on Social Security taxes, which currently applies to income up to $168,600.
Increasing the retirement age beyond the current 66 to 67 years.
Means testing benefits, reducing them for individuals with higher incomes or assets.
So far, there hasn’t been action on these proposals which means the future of Social Security is uncertain.
As it stands, most Americans still take Social Security before reaching full retirement age. However, with the potential for future benefit cuts, it’s essential to plan carefully. If you’re under 50, it might be wise to consider other sources of retirement income, as the future of Social Security remains unclear.
Social Security provides benefits to around 1 in 5 citizens but there are some little known rules that can impact their benefits. This often comes up as we speak with seniors as they plan to downsize and relocate. These rules need to be figured into financial planning.
An article from The Motley Fool looks at two Social Security rules that are particularly relevant today as many seniors are still in or returning to the workforce.
1. Working After Claiming Social Security Early: A Potential Reduction in Benefits: The first is for those who collect Social Security retirement benefits before reaching their full retirement age (FRA). Shockingly, between 25% and 50% of pre-retirees are unaware that continuing to work after claiming Social Security early can lead to a benefit reduction.
>If you receive Social Security retirement benefits before your FRA, your benefits will be reduced by $1 for every $2 you earn above an annual limit. For 2024, this limit is set at $22,320. The rules change in the year you reach your FRA, with a higher threshold of $59,520 and a reduction of $1 for every $3 earned above this limit.
2. Temporary Reduction: A Social Security Advisory Board report finds that only 30% to 40% of those informed about the reduction understand its temporary nature. The Social Security Administration rules mean benefits will no longer be reduced starting from the month you reach FRA and that your benefit amount will be recalculated to provide credit for any amount previously withheld.
So many retirees these days are engaging in partial retirement or they move in and out of the workforce before fully retiring and that trend is expected to continue. It’s all the more reason to be aware of the potential benefit reduction and the temporary nature of the reduction. A retirement strategy taking these rules into account will help ensure you make the most of your benefits.
AARP has answers to some of the most popular questions about how to make the most of your social security. For more information, visit AARP.org.
(From AARP) Whether you’ve claimed already or are planning your future, you’ll want to get the most out of your Social Security. Estimate your earnings, get the latest on the Cost‐of‐Living Adjustment (COLA), understand how spouses, ex‐spouses and children can collect benefits, and more.
How much Social Security can you get? *Age Matters *Work Matters *Inflation and Adjustments Matter *Marriage Matters
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