Maximizing Social Security: Concerns and Strategies for 2024 & 2025

As retirement approaches, Social Security remains a critical piece of the puzzle for millions of Americans. With recent changes, including cost-of-living adjustments and shifts in claiming strategies, questions are on the rise. Here’s a breakdown of the most pressing concerns and insights into maximizing Social Security benefits.

1. What is the 2025 Cost-of-Living Adjustment (COLA) for Social Security?

In 2025, Social Security recipients will see a 2.5% increase in their benefits due to the annual COLA. This adjustment, determined by the Consumer Price Index (CPI), is designed to help benefits keep pace with inflation​. While this increase may offer some relief, it’s modest compared to the high inflation rates seen recently. Understanding how this adjustment impacts your monthly income is essential, especially for those relying heavily on Social Security to cover living expenses.

Tip: To gauge how this increase will affect your specific benefits, use the Social Security Administration’s calculator or consult with a financial advisor. Planning with updated figures will help you better budget for your upcoming expenses.

2. When Should You Claim Social Security?

Timing is crucial for optimizing your benefits. You can begin claiming Social Security as early as age 62, but doing so means accepting a reduced monthly payment. For each year you delay claiming past your full retirement age (typically between 66 and 67), your benefits increase by approximately 8% until age 70​. With rising life expectancies, this delay can make a significant impact on lifetime earnings.

Strategy: Evaluate your health, life expectancy, and financial needs. If you’re in good health and have other income sources, delaying until 70 can maximize benefits. For those who need the income sooner or have health concerns, claiming earlier might be the best choice.

3. How Does Work Impact Your Social Security Benefits?

If you’re planning to work while collecting Social Security before reaching your full retirement age, be aware that your earnings can reduce your benefits. In 2024, if you’re under the full retirement age, the SSA deducts $1 for every $2 earned above $22,320​. This reduction can affect your cash flow, so understanding these thresholds is crucial to your retirement planning.

Tip: Consider the earnings test and how it impacts your strategy. Once you reach full retirement age, you can work without a reduction in benefits, which could provide a strong incentive to wait if you’re still employed.

4. Will Social Security Run Out of Money?

Concerns about the solvency of the Social Security program are ongoing, with predictions that the trust fund may be depleted by 2033 if no legislative changes are made​. This doesn’t mean Social Security will disappear, but future benefits could be reduced to approximately 77% of scheduled amounts unless Congress acts.

Advice: While future reductions are possible, Social Security will continue in some form. Planning for potential cuts by saving more in tax-advantaged accounts like 401(k)s or IRAs can provide a buffer. Stay informed about policy changes that may affect your benefits.

5. How Does Inflation Impact Your Benefits?

High inflation rates can erode the purchasing power of fixed incomes, including Social Security. While COLA helps offset this by adjusting payments annually, benefits may not fully keep pace with rising costs in healthcare, housing, and everyday essentials​.

Action Plan: Consider strategies to maintain your purchasing power. This could include investments in assets that historically hedge against inflation, such as Treasury Inflation-Protected Securities (TIPS), or planning for additional income streams during retirement.

6. What Are the Tax Implications of Social Security Benefits?

Depending on your income level, Social Security benefits may be subject to federal taxation. If your combined income exceeds $25,000 (single) or $32,000 (married), up to 85% of your benefits could be taxable​. Tax implications can significantly impact your net income, so it’s important to understand how your benefits interact with other sources of income.

Tip: Consider withdrawing from Roth accounts, which are tax-free, to keep your income below taxable thresholds. Consulting with a tax advisor can help you develop a plan that minimizes taxes on your Social Security benefits.

Final Thoughts: Staying Ahead of Social Security Changes

The evolving landscape of Social Security requires proactive planning. Regularly reviewing your strategy can help you adapt to changes in the economy, benefits structure, and personal health. Here are some additional tips:

• Use the “My Social Security” online account to track your estimated benefits and adjust your plans based on updated projections.
• Consult with a retirement planner who understands the nuances of Social Security. This expertise can provide tailored strategies that maximize your lifetime income.
• Stay informed about legislative changes. Bills that adjust the retirement age, benefit formulas, or COLA calculations could directly impact your plans.

By understanding the rules and timing your decisions wisely, you can make the most of your Social Security benefits, ensuring a more stable and predictable retirement.

Looking for Guidance?

If you’re seeking personalized advice, consider reaching out to a financial professional.. Get started by visiting our “Find a Financial Professional” section, where you can connect with someone directly. If you would like a personal referral for a first appointment, please call us at 877.476.9723 or contact us here to schedule an appointment with an independent trusted and licensed financial professional.

🧑‍💼Authored by Brent Meyer, founder and president of SafeMoney.com, with over 20 years of experience in retirement planning and annuities.

This article is for informational purposes only and should not be considered as financial, legal, or tax advice. Social Security regulations and tax laws are complex and subject to change. For personalized advice, please consult a qualified financial advisor or tax professional who can consider your specific circumstances.

Source List: Social Security Administration – ssa.gov, AARP – aarp.org, Kiplinger – kiplinger.com, Guideline Financial – guideline.com, Investopedia – investopedia.com, The Center on Budget and Policy Priorities (CBPP) – cbpp.org