With the new year, Social Security will undergo adjustments that some program participants may welcome, while others are inevitable.

If, like almost 40% of baby boomers, your benefit is or will be your main source of retirement income, this is very problematic. Following the program’s ups and downs will make the transition easier and your retirement more comfortable.

Some of the anticipated modifications are as follows.

1. The COLA is increasing

Benefits will rise by 2.5 percent starting in January as a result of the cost-of-living adjustment (COLA).This is a $50 monthly rise for the typical retiree who makes little over $1,900 a month.

On the other side, it shows that inflation is gradually slowing down after the pandemic devastated the economy. This is the lowest COLA since 2021 and much lower than the sharp increases of 5.9% in 2022, 8.7% in 2023, and 3.2% in 2024.

The significant rises during the years when prices were rising quickly can be explained by the clear correlation between COLAs and inflation. In June 2022, inflation hit a 40-year high of 9.1%, but by October 2024, it had dropped to 2.6%, according to the Bureau of Labor Statistics.

Although the smaller increase may disappoint some retirees, the decrease in inflation may be advantageous since it enables retirees to stretch their funds further, thereby lessening the impact of a more modest adjustment.

2. The Social Security earnings test limits are increasing

Contrary to popular opinion, it is possible to work while receiving benefits. The issue is that the so-called retirement earnings test may result in the withholding of a portion of your benefits check, contingent on your income. You can continue working and getting full benefits once you reach your full retirement age (FRA); this only applies while you are below that age.

Depending on whether you will achieve your FRA by 2025, the Social Security Administration (SSA) has established two alternative restrictions. In 2025, both of these income thresholds will increase, enabling you to make more money before your benefits are reduced.

3. Both the Maximum benefit and the maximum taxable earnings limit are increasing

Benefits for eligible claimants will rise from $4,873 to $5,108 per month when the COLA is added to the maximum amount. You must have earned the maximum taxable earnings limit for all 35 years taken into account by the SSA at the time of your retirement and waited until you turned 70 in order to be eligible for benefits.

The maximum taxable earnings cap is also rising, which makes things a little more difficult for the typical American. This is wonderful news for people who receive the benefit, but it might not be so good for those who wish to do so.

The yearly maximum taxable earnings limit is $168,600 in 2024; any income over this threshold is exempt from taxes; in 2025, it will increase to $176,100. This implies that the taxes of individuals who earn between 2024 and 2025 will increase every year.

Salary increases may seem like terrible news, but the more money paid into Social Security, the better the system will work.

See Also: The Real Story of Trump’s Promise to Remove Social Security Taxes Beginning in 2025

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