Social Security recipients will see a 2.5% cost of living increase in their benefit payments starting in January 2025. This adjustment translates to an average increase of more than $50 for retirees every month, according to agency officials. The AARP estimates that a 2.5 percent COLA would increase the average benefit for a retiree receiving about $1,920 a month by $48.
The Social Security program is financed by payroll taxes collected from workers and their employers. The maximum amount of earnings subject to Social Security payroll taxes was $168,600 for 2024, up from $160,200 in 2023. Analysts estimate that the maximum amount will increase to $174,900 in 2025.
In addition to the COLA increase, some Social Security recipients will get an extra check in November 2024 due to a calendar quirk. Typically, Supplemental Security Income recipients receive their checks on the first of each month. However, if the first of the month falls on a holiday or weekend, checks are delivered on the previous weekday.
In December 2024, the first of the month falls on a Sunday, which means checks for December will be delivered on November 29, according to the Social Security Administration. For January 2025, checks will be delivered on December 31, 2024. For February, checks will be delivered on January 31, and for March, checks will be delivered on February 28.
Subsequently, no checks will be delivered in March, before things return to normal in April. It’s important for those nearing or already receiving Social Security benefits to stay up to date on any changes to how those benefits are paid out.
cola adjustment impacts social security benefits
One of the biggest changes coming in 2025 is an adjustment to the earnings threshold required to earn work credits. The system currently requires American workers to earn $1,730 for each work credit, but this will rise to $1,810 in 2025. While workers can accrue up to four credits each year, this incremental change reflects adjustments related to inflation and average wage growth.
If you’re a full-time worker, you likely won’t need to be overly concerned about these changes. However, it might be a different story if you’re a part-time worker who might struggle to accumulate enough credits. Carefully reviewing these changes and predicting your likely earnings in 2025 can help determine whether the changes might affect you.
Remember, while the work credits are used to determine your eligibility for benefits, they don’t affect the actual amount you receive. Social Security credits establish only your eligibility for retirement, disability, and survivors’ benefits and whether you qualify for Medicare, but they have no role in calculating the amount of your payments. If you’re nearing retirement age, understanding the ins and outs of Social Security is important.
You want to make sure your earnings are enough to secure at least four credits each year for the 10 years prior to the date of your retirement, especially if your income varies from month to month or if you’re working only part-time. You’ll also want to carefully consider your timing for claiming your Social Security benefits. Though you can access your benefits as early as age 62, waiting until the full retirement age, or even longer, can mean higher monthly payments.
Even if you’re someone who won’t have to worry about qualifying for Social Security, you may want to carefully consider your post-retirement income. It’s best to depend on Social Security as only one part of your overall retirement plan. Additional savings, investments, and revenue streams from reliable sources can provide a much greater financial safety net.
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