How Much Could Increase Benefits the Social Security Cost-of-Living Adjustment (COLA)?
Everything is going to change and we are just days apart from finding out how much the Social Security benefit will increase with the 2025 COLA.
The highest amount received by Social Security beneficiaries is $4,873 per month, and it will increase starting from January 2025. That means now they are receiving more than $58,000 per year, and just like everyone else, will receive a higher percentage of their current checks. So, even though they have the largest checks, they will still be able to notice a significant difference in 2025.
The 2025 COLA is probably going to be around 2.5%
According to The Seniors Citizens League (TSCL), the 2.5% would add $122 per month to the beneficiaries’ checks. That is another $1,464 per year.
In order to claim the biggest Social Security benefits, you need to delay your Social Security claim until 70 and also earn the maximum income subject to Social Security taxes for at least 35 years. It’s not that easy! It can be done just by those who can cover their living costs no matter where the COLA comes in.
Considering the formula that changes yearly, these people might not be the top Social Security earners for long. However, everyone will find out how much they’ll get when the Social Security Administration announces the 2025 maximum benefit. The information should be shared around the COLA announcement.
The average COLA increase will be less than expected
Unfortunately, even though everyone is talking about big changes, the benefit increase might not be as big as we hope and cover our expenses. Retirees are most likely not to have enough money to cover rising costs.
Once you see the official estimation of COLA on October 10, you will be able to imagine what your check will look like in 2025 by adding the new percentage to your current benefits. However, you will be able to access a personalized COLA notice from the Social Security Administration. They will be listing your exact amount for 2025, this year, in December.
As soon as you know how much you can get from the program, you can plan your budget for the next year and also work efficiently for your financial future. In case you are not expecting great news, you should start searching for other sources of retirement income. Some of the most common options are a new job, government benefits, and rental income.
How COLA works
COLA is using a specific formula to ensure benefits keep up with inflation. Last year, benefits increased, by 3,2%, so the beneficiaries claimed $50 extra per month.
COLA is usually announced in the fall, considering that it uses third-quarter inflation numbers. So, the cost-of-living adjustment amounts will be announced on October 10, this year. However, nothing changes until next year. The benefits will be paid to beneficiaries starting from January and the exact amounts for each individual will be announced earlier, in December.
Cost-of-living adjustments are extremely important to keep up with inflation and help retirees cover their monthly expenses, that is why everyone is waiting for the next year’s plan.
Here are the 3 most important changes regarding the 2025 Social Security benefits:
1. Social Security cost of living adjustment
The adjustment is more likely to be smaller than in 2024. The projected COLA for 2025 is 2.5%. It’s best on the August CPI numbers, which is the second of three sets of numbers the SSA will use to determine the 2025 COLA.
It’s important to remember that a decline in the inflation rate means prices will rise more slowly, but it doesn’t address the already high costs of essentials like food, utilities, or housing that many people find difficult to afford. The Kiplinger Inflation Outlook noted in July that grocery and energy prices have remained fairly stable and that housing expenses are expected to decrease more than they currently have.
2. Retirement age
The full retirement age will increase in 2025. So, retirees will have to wait a little bit longer to achieve the perfect age for an official retirement procedure. If you were born from 1955 to 1967, the new retirement age will be around 67 years old.
More specifically, in 2025, the retirement age will be 66 years and 10 months. For those who turned 66 in 2024, the full retirement age (FRA) is 66 years and 8 months.
Considering your birth year, this is when you will reach your FRA:
- If you were born in 1958 your FRA is age 66 and 6 months and was reached in 2024
- If you were born in 1959 your FRA is age 66 and 10 months and is reached in 2025
- If you were born in 1960 or later your FRA is age 67 and will be reached in 2026 and later
- People born on the January 1 of any year, refer to the previous year!
As you already know, the earliest possible retirement age is 62. If you choose to retire at 62, your Social Security benefits will be significantly lower than if you retire at your full retirement age. The more months remaining between 62 and your FRA, the more monthly payments will be reduced. So, think twice and choose wisely before making a decision! Also, keep in mind that money isn’t everything, and in case you are dealing with health issues that don’t let you work properly, you should definitely put yourself first.
On the other hand, if you continue working, even though you achieved your FRA, you can increase future Social Security in 2 ways: each extra year you work adds another year of earnings to your Social Security record, and of course, higher lifetime earnings mean higher incomes as a retiree.
Benefits will grow from the moment you hit your full retirement age until you begin collecting them or until you are 70. For every year you postpone claiming Social Security benefits past your FRA, your benefits amount increases by %8.
3. Social Security credits and taxes
In 2025, you will have to earn a minimum number of credits in order to benefit from Social Security. The Social Security Administration will not offer you any benefits in case you don’t earn enough credits. To be considered eligible, you need a minimum of 40 work credits. Keep in mind that you are allowed to earn 4 credits per year.
In 2024, you need to earn $1,730 in wages or self-employment income to receive one credit, and a total of $6,920 for the maximum of four credits. The numbers are adjusted each year, so changes are expected for 2025. For comparison, in 2023, the requirement was $1,640 per credit, which is $90 less than what’s needed in 2024.
Keep in mind that earning more than 40 credits, will not increase your benefit payment! Your retirement benefits are calculated based on your earnings throughout your working life.
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Are you interested in reading more about Social Security? Here is another article found on our website: 5 Social Security Changes If Kamala Harris Wins the Elections. Kamala Harris has come into the game, stronger than anyone expected and it seems that she has a HUGE chance to become the first female president of the United States. Check out the article and see what are the main differences between her and Trump, when it comes to Social Security.
