Since it was announced in October, the Social Security Cost of Living adjustment (COLA) has been making headlines. There was a lot of debate among experts about whether the 2.5% was good news or not because it was lower than expected or desired.

One of the numerous experts who thinks that the little rise is excellent news for retirees is financial expert Suze Ormanis, who has offered her thoughts on why this is a favorable development. She claims that while a lesser inflation adjustment may seem discouraging since everyone wants more money to cover living expenses, it’s actually excellent news because it shows that we are no longer having to deal with rapidly rising fundamental costs.

The disappointment may be even greater when compared to the 8.7% adjustment in 2023, but we must keep in mind that the economy suffered greatly during the 2022 inflationary period, and that the objective for 2025 is greater stability for everybody, but particularly for those on fixed incomes.

How Social Security s COLA Benefits Retirees

Although everyone has a different understanding about how Social Security benefits operate, Orman reminds us that while they are intended to assist seniors live comfortably, they should not be the only source of income that they rely on. Social Security payouts are unique from other savings options, such as 401(k) plans and IRAs, in that they are intended to assist recipients in preserving their purchasing power as living expenses fluctuate. According to Orman, assets in your 401(k) and IRA don’t come with any assurances, much less an inflation adjustment built in.

Many people are concerned that they will lose out on some increases if they do not file as soon as possible, especially during a high year, even though waiting to claim will increase your chances of having a livable income. However, as Orman explains, beneficiaries shouldn’t have to worry about that while they are employed. Monthly payments are increased by delaying Social Security claims, particularly for those who wait until they reach full retirement age or even age 70. Orman highlights that you will be eligible for a significantly greater payment if you wait until you reach your full retirement age (66 or 67, depending on your birth year) or until you are 70 years old. He also notes that annual COLA adjustments are recognized even if you haven’t begun receiving benefits. Thus, you no longer have an excuse to apply for an early (decreased) Social Security payout.

Working Beneficiaries and Income Limits

But still, some beneficiaries decide to take advantage of the fact that you can claim while working and try to get a higher salary by claiming earlier. The truth is that most retirees do not consider the earnings cap that Social Security imposes to people who are still employed and have not yet reached full retirement age, even if this might be a sensible strategy for some, such as when beginning an uncertain endeavor.

Benefits for beneficiaries under full retirement age will be temporarily lowered in 2025 by $1 for every $2 earned over $23,400. When people reach full retirement age in 2025, the cap rises to $62,160. The good news is that any benefits that are withheld as a result of this earnings test are just temporary, as Orman explained. According to Orman, your pension is revised to reflect the withheld amount once you reach full retirement age. This implies that modifications are finally made to restore advantages that were withheld.

Social Security Wage Base Increase

Future beneficiaries should also consider that in 2025, the earnings ceiling subject to Social Security tax would increase to $176,100. Knowing how much you will have taxed in your income will help you plan better for your retirement, and it will take the guesswork out of figuring out how much you will get in benefits in the future.

As Orman advises, being informed about changes will help retirement planning go a lot smoother.

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