The cost-of-living adjustment (COLA) that Social Security recipients get each year affects their payments, usually increasing them to keep up with inflation. However, if you are not a very serious news consumer, you could not be aware of this year’s 2.5% hike, which would be detrimental.
For this reason, the Social Security Administration notifies recipients of any changes to their payments each year. This year, beneficiaries with My Social Security accounts will also be able to see this message online.Unless you have deactivated print notifications in your My Social Security Account options, you should expect to get this letter in the mail in December.
Which modifications will be included in this notification this year?
A new 2.5% Cost-of-Living Adjustment
The typical retirement check, which is currently around $1,907, will grow by $50 per month as a result of the hike. Depending on the size of your check, this figure will vary, but it should give you a sense of how it will shake out.
2.5% appears low in comparison to prior gains, particularly when considering the 8.7% that took place in 2023, but this could be a sign of slowing inflation.
The owner of Covisum, a software company that helps people claim their Social Security benefits, and certified financial adviser Joe Elsasser cautions against being overly hopeful. Even if price hikes have slowed, inflation is still a problem. Without much notice, prices and inflation could increase once more.
Monthly Medicare Part B premiums to go up
The fact that rates for Medicare Part B, which includes physician services, outpatient hospital treatments, some home health services, and durable medical equipment, are increasing this year is some depressing news for enrollees. Although it’s only a $10.30 increase from this year’s $174.70, many people may find the new $185 monthly payment painful.
In 2025, their annual deductible will rise to $257, a $17 increase over the $240 deductible in 2024. The fact that Medicare Part B premiums are taken straight out of Social Security payments and that some persons can ask to have their Medicare Advantage or Part D premiums taken out as well should not be forgotten.
The beneficiary’s modified adjusted gross income (MAGI) from the previous two years is used to calculate Part B premiums. The basic monthly premium will be paid in 2025 by individuals with a 2023 MAGI of $106,000 or less and married couples with a 2023 MAGI of $212,000 or less. Higher earners’ premiums will increase due to Income-Related Monthly Adjustment Amounts (IRMAA). The Centers for Medicare and Medicaid Services estimate that these income-based modifications apply to around 8% of Medicare Part B beneficiaries.
Income changes may prompt higher taxes
Retirees should always be on the lookout for changes in their income that could put them in a higher tax bracket. What we’ve observed with customers is a sort of spike in other income that has resulted in a higher taxation of their Social Security, says CFP Brian Vosberg, president of Vosberg Wealth Management in Glendora, California.
It’s crucial to keep in mind that combined income, which includes adjusted gross income, nontaxable interest, and half of Social Security payments, is taxed rather than simply Social Security income. This amount will be subject to taxes if it exceeds a specific threshold. Beneficiaries have the option to request that federal taxes be withheld from their benefit payments in order to prevent unpleasant surprises.
The greatest method to prevent paying unnecessary taxes is to be proactive about your tax strategy. Some options that Vosberg recommends are buying an annuity that lets thatinterest grow tax-deferredor reducing income from other areas, such asIRA withdrawalsto help soften the blow.
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