Starting in January 2025, Social Security beneficiaries will see a 2.5% cost-of-living adjustment (COLA), marking the smallest increase since 2021. This modest adjustment reflects a positive economic trend as inflation slows, according to financial expert Suze Orman, who recently shared her insights on the change. While the raise may seem underwhelming, Orman highlighted its importance and the unique role Social Security plays for retirees.
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“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,” Orman said.
In contrast, the 2023 adjustment was a substantial 8.7% to account for high inflation in 2022. Here are some other things you should know about Social Security in 2025.
How Social Security’s COLA Benefits Retirees
Orman underscored the unique value of Social Security’s annual COLA, which automatically adjusts benefits to account for inflation. Unlike IRAs and 401(k) plans, Social Security is designed to help beneficiaries maintain purchasing power as the cost of living changes.
“Your IRA and 401(k) investments don’t offer any guarantees, let alone a baked-in adjustment for inflation,” Orman noted.
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No Need To Claim Early To Get the COLA
Future beneficiaries don’t need to worry about missing out on the COLA if they delay claiming benefits. Waiting to claim Social Security can actually increase monthly benefits, especially for those who wait until their full retirement age (FRA) or even age 70.
“If you delay collecting until your full retirement age (between 66 or 67, depending on your birth year) or until age 70, you will be entitled to a much larger benefit,” Orman explained, adding that annual COLA adjustments are credited even if you haven’t started taking benefits. “So now you have one less reason to feel the itch to claim an early (reduced) Social Security benefit.”
Working Beneficiaries and Income Limits
For beneficiaries who are still working and haven’t yet reached full retirement age, Social Security applies an earnings limit. In 2025, benefits will be temporarily reduced by $1 for every $2 earned above $23,400 for beneficiaries below their FRA. For those reaching FRA in 2025, the limit increases to $62,160. Orman clarified that any withheld benefits due to this earnings test are only temporary.
“Once you reach your FRA, your benefit is recalculated to account for what was withheld,” Orman said. This means withheld benefits are eventually restored through adjustments.
Social Security Wage Base Increase
For 2025, the Social Security wage base — the cap on earnings subject to Social Security tax — will rise to $176,100, meaning only income up to that amount is taxed for Social Security. Income above this threshold will remain exempt from Social Security taxes.
Orman advised beneficiaries and future retirees to stay informed about these adjustments as part of their retirement planning. Though the 2.5% COLA may seem modest, it underscores the steady, inflation-adjusted income Social Security provides, making it an invaluable resource for retirement security.
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This article originally appeared on GOBankingRates.com: Suze Orman: 2025 Social Security Changes You Need To Know About and Their Impacts