Understanding the 2025 Social Security Changes and Their Impact

Welcome to Money Monday with Suze, a weekly newsletter designed to inspire your financial life and give you actionable insights from the World’s Personal Finance Expert. Like what you’re reading? Subscribe and share with your friends. Let’s dive in…

For those of you collecting your Social Security retirement benefit, your monthly payment will be 2.5% higher beginning in January.

That increase is to account for inflation. It’s the smallest adjustment since payments for 2021 rose 1.3%?

A smaller inflation adjustment can feel disappointing—we all want more money to cover living expenses—but it’s actually good news, as it reflects that we are no longer dealing with basic expenses rising at a fast rate. (The adjustment for 2023 payments was 8.7%, reflecting the high inflation we experienced in 2022).

Social Security’s annual cost of living adjustment (COLA is the official acronym you may hear tossed around) is one of the most valuable retirement benefits. Your IRA and 401(k) investments don’t offer any guarantees, let alone a baked-in adjustment for inflation.

And don’t worry about missing out on the COLA if you aren’t yet claiming your Social Security benefit. The COLA is not a reason to claim early!

As you know, once you turn 62 you can start collecting your Social Security retirement benefit. I hope by now you also know that if you delay collecting until your full retirement age (between 66 or 67 depending on the year you were born) or until age 70, you will be entitled to a much larger benefit.

And there’s no reason to consider claiming early because of the COLA. Once you turn 62, Social Security will credit your account with each year’s COLA even if you haven’t started taking your benefit. So now you have one less reason to feel the itch to claim an early (reduced) Social Security benefit.

There are some other 2025 adjustments to Social Security I want you to know about:?

• If you have started collecting and are also working, you may see your benefits temporarily reduced. Anyone who has yet to reach their FRA will have their benefits reduced by?$1 for every $2 earned above the 2025 level of $23,400. If you are collecting already and you will reach your FRA in 2025, you can earn up to $62,160 without having a benefit reduction. Once you are at your FRA there are no benefit reductions regardless of what you earn. Now I want to make sure you carefully read what I wrote: the $1 reduction for every $2 that kicks in above those income levels is temporary. Once you reach your FRA, your benefit is recalculated to account for what was withheld during the period you were collecting and younger than your FRA.?
• For those of you still working, the amount of your earnings that will be subject to the Social Security tax in 2025 is rising to $176,100. Every penny of earnings below that level pays the Social Security tax. Every penny above is not subject to the tax.

Staying the Course

On Sunday's podcast I share why it’s so important to stay grounded in what’s happening right now with ourselves, our families, and our money.?I also review current stock market trends, real estate, interest rates and more. Listen and subscribe to Suze Orman's Women & Money (and everyone smart enough to listen) Podcast on your favorite streaming app.