COLA updates for 2025 won't be announced until Oct. 10, but economists are predicting a 2.57% increase in Social Security benefit checks. That would be lower than the previous two years and could hit some states harder than others.
Ten states have lower average Social Security payment amounts, which means they will see the lowest increases.
Alaska, Arkansas, California, the District of Columbia, Kentucky, Louisiana, Maine, Mississippi, Montana, and New Mexico are expected to receive the smallest increase in dollars per check because the median income for these states is lower than average.
The COLA updates are a percentage of what is already being paid, so while they will receive the same percentage increase, it will total less because their payments are a lower dollar amount.
If you're hoping to stretch your Social Security income as far as possible, then you'll want to learn about some key changes to benefits made in 2024 that will help you understand how much you'll receive from Social Security in 2025.
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1. The 2024 Social Security COLA is 3.2%
In 2023, inflation was somewhat subdued compared to the previous year. However, consumer prices still rose, resulting in a 3.2% cost of living adjustment (COLA) for Social Security recipients.
As a result, the average Social Security benefit increased by $59 per month in 2024, from $1,848 to $1,907. It's essential to consider how this adjustment will impact your overall financial situation and your ability to retire stress-free .
The COLA announcement for 2025 will be announced on Oct. 10 but won't hit checks until January.
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2. Medicare premiums are $9.80 higher
For those enrolled in Medicare, premiums for Part B — which covers doctor visits and outpatient treatments — are typically deducted directly from Social Security payments.
The monthly Part B premium has increased from $164.90 in 2023 to $174.70 in 2024. That $9.80 increase is likely to come out of your Social Security benefit, offsetting a bit of the gains from the COLA adjustment.
3. The Social Security earnings test threshold has increased
Individuals who collect Social Security while continuing to work before reaching full retirement age may see a portion of their benefits withheld depending on how much they earn.
In 2024, beneficiaries who haven’t reached full retirement age and are still working will have $1 withheld for every $2 in work income they receive above $22,320. In 2023, that amount was $21,240.
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4. Social Security disability benefits income thresholds are higher
Social Security Disability Insurance (SSDI) recipients must meet income requirements to maintain eligibility for benefits. In 2024, the threshold for most SSDI beneficiaries is an income of $1,550 per month, up from $1,470 in 2023.
For those receiving SSDI due to blindness, the limit increases to $2,590 per month, up from $2,460 in 2023.
5. Spousal benefits are rising
Mothers who have been widowed and who have two children have seen their spousal benefits rise from an average of $3,540 a month in 2023 to $3,653 a month in 2024.
For aged widows and widowers living alone, average benefits have risen from $1,718 a month in 2023 to $1,773 a month this year.
6. You may pay more taxes on your benefit income
Social Security benefits may be subject to federal taxes. The amount that's taxed is based on your combined income, which includes the sum of half your benefits plus total adjusted gross income and nontaxable interest.
For individual tax filers, up to 50% of benefits may be taxable if they have a combined income between $25,000 and $34,000. For couples filing jointly, this range is between $32,000 and $44,000.
If you earn above these thresholds, up to 85% of benefits may be taxable.
Those thresholds remain unchanged from year to year. That means that as your benefit income increases yearly with COLA adjustments, more of it may become taxable. That makes it harder to boost your bank account .
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Social Security may seem complex, but understanding these changes can help you make informed financial decisions.
Equipping yourself with knowledge about cost-of-living adjustments, Medicare, and taxes allows you to avoid making mistakes and create a more secure retirement.
Money tips that can work for everyone
No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.
Focus on paying off your debt. Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.
Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.
Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).
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