91����

It’s 2025 and change is in the air, whether you made any New Year’s resolutions or not. A variety of updates to Social Security will affect paychecks for high earners as well as Social Security checks for anyone who’s receiving them this year.

��

COLA, C-O-L-A COLA

Every year, Social Security payments get a cost-of-living adjustment tied to inflation. Because 2024 inflation was lower than in previous years, this year’s COLA – 2.5% – might seem skimpy in comparison.

Payments increase – but not by much

Expect a smaller bump in your monthly benefits. For example, if your payment was $2,000 a month, a 2.5% COLA adds $50.

How it lines up with inflation

Overall, inflation stood at 2.6% per October’s consumer price index (the latest available as of this writing). But your experience of inflation depends on what you buy. Like eggs for breakfast? They increased a whopping 30% since October 2023.

On the other hand, if you’re in the market for a used car, their price decline might offset your annual egg budget – they dropped 3.4%, or a savings of $680 on a $20,000 car.

What to do now

As we’ve previously covered, if your COLA’s not cutting it, one of the best hedges against inflation is a diversified portfolio that includes a generous helping of stocks.

And if you’re concerned about not being able to cover your expenses in 2025, reach out to your financial planner. They’re here to help you.

��

Benefits to the max

If you’re just starting to collect Social Security in 2025, you’ll be glad to know that the maximum benefit if you retire at Full Retirement Age is also increasing in 2025, to $4,018 a month.

Who gets the maximum?

Your benefit level depends on how much you earned during your lifetime and what age you are when you start collecting. So that maximum amount is for a high earner with a full work history (at least 35 years) who collects at their Full Retirement Age.

If the same person started collecting at age 62 in 2025, they’d only receive $2,831 a month.

But wait, there’s more

Believe it or not, the maximum benefit is not really the max. That’s because you can get more Social Security by waiting to collect – your benefit level doesn’t actually max out until you’re age 70. In fact, someone who’s earned maximum benefits can receive $5,108 a month if they start collecting at age 70 in 2025.

And if you’re worried about inflation? Waiting to collect Social Security can help with inflation as well.

Watch out

Anytime you earn more income once you’re eligible for Medicare (or within a couple years of eligibility), pay attention. The COLA might not add up to much, but if you’re even $1 over the Income-Related Monthly Adjustment Amount threshold (see our recent article), it will trigger higher Medicare costs.

Your 2025 income will impact your Medicare costs in 2027.

You have plenty of time to be strategic in reducing your income if it makes sense. Take a look at the 2025 IRMAA brackets and talk to your planner if you’re over or near them.

Higher benefits for others on Social Security, too

Retirees may be able to collect on their spouse’s (or ex-spouse’s) record instead of their own, and receive up to half of his or her FRA benefit. So the max possible benefit for a spouse/ex-spouse who qualifies and chooses to go this route is $2,009 in 2025.

There are also Social Security benefits for those who have been widowed or disabled, and those benefits will be increasing as well. The Social Security Administration estimates the average 2025 monthly benefit for a disabled worker at $1,580, and the average for an older person who is widowed at $1,832.

��

Double dipping Social Security and a paycheck

You’re absolutely allowed to collect Social Security while still working. But you may pay a temporary penalty for it. (Generally, we don’t recommend you do this unless it’s financially advantageous over the long term – talk to your planner.)

This only applies to anyone who hasn’t reached their FRA yet. After that, you can earn as much as you want from a job without losing benefits. And even if you’re under FRA, your benefits aren’t lost forever – once you reach your FRA, your benefit will be adjusted upward to account for the withheld amounts.

How much you can earn in 2025

In 2025, you can make up to $23,400 (called the “earnings test exempt amount”) without having any benefits withheld.

(And if you’re reaching your FRA in 2025, you can earn up to $62,160 in the months prior with nothing withheld.)

��

Higher taxes, lower paycheck?

If you’re a high earner, more of your income will be subject to Social Security payroll taxes in 2025. All else equal, that could mean lower take-home pay.

What’s a high earner?

The new amount subject to Social Security tax is $176,100, up from $168,600. So if you make in that range or more, this change will affect you.

The impact

If you earn more than $176,100, you’ll pay tax on the full amount of the $7,500 increase. At the usual 6.2% rate, that’s a tax bump of $465.

It might not amount to much, but it’s all part of your bigger tax picture. If you haven’t talked to your planner about tax strategies, set up time to review your situation and see whether you might be missing opportunities.

��

Have questions?

If you’re concerned about how these changes will affect your financial plan, talk to your planner. We’re here for you.