As 2024 unfolds, millions of Social Security recipients are anticipating the 2025 Cost of Living Adjustment (COLA). This yearly increase helps Social Security benefits keep up with inflation, ensuring that beneficiaries can manage rising costs for goods and services.
In 2024, many are looking ahead at how the 2025 COLA could increase their benefits, but there are also proactive strategies you can take now to maximize your Social Security payments in the upcoming year.
In this article, we’ll explore the 2025 COLA update and provide actionable strategies to increase your Social Security payments, not just through the COLA but through planning and smart financial choices.
What is the COLA (Cost of Living Adjustment)?
The Cost of Living Adjustment (COLA) is a percentage increase applied to Social Security benefits every year to keep pace with inflation. It is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures the cost of a variety of goods and services, including food, housing, and transportation.
- For 2024, beneficiaries saw an 8.7% increase in their payments due to high inflation, the highest jump in over 40 years.
- In 2025, the COLA adjustment will likely be smaller, but it will still be beneficial. The exact percentage will depend on inflation trends in 2024.
However, while the COLA helps Social Security payments stay in line with rising living costs, there are other strategies you can use to ensure you’re getting the most from your Social Security benefits.
Key Strategies to Increase Your Social Security Payments in 2024
- Maximize Your Earnings Before Retirement
Your Social Security benefits are calculated based on your highest 35 years of earnings. This means that the more you earn during your working years, the higher your Social Security payment will be once you retire.
- Increase Your Earnings: If you are still working, increasing your earnings will help raise your future benefit amount. This can be done by negotiating raises, switching to higher-paying roles, or taking on extra work.
- Work Longer: If you’ve already worked for more than 35 years, any additional years of high income will replace lower-earning years, which will increase your average earnings and thus your benefit.
- Maximize Your Taxable Income: Social Security benefits are based on the earnings that are subject to Social Security taxes. In 2024, the Social Security wage base is $160,200. If you’re close to this amount, working to hit or exceed it can boost your future benefits.
How to Prepare: Ensure you are reporting all your earnings correctly and aim to earn as much as possible to maximize your future benefit.
- Delay Your Social Security Claiming Age
The age at which you begin receiving Social Security benefits has a significant impact on the amount you will receive monthly. You can start benefits as early as age 62, but doing so will reduce your payments permanently. On the other hand, delaying your benefits until Full Retirement Age (FRA) or even until age 70 can increase your monthly payout.
- Full Retirement Age (FRA): If you wait until your FRA (between 66 and 67, depending on your birth year), you will receive 100% of your calculated benefit amount.
- Delayed Retirement Credits: For every year you delay claiming past your FRA (up until age 70), your monthly benefit increases by about 8% per year. This means you could receive up to 32% more in benefits by waiting to claim until age 70.
How to Prepare: If you’re able to delay your Social Security benefits, consider working longer to increase your benefit. This strategy can be especially effective if you’re in good health and can afford to wait.
- Review and Correct Your Earnings Record
The Social Security Administration (SSA) uses your earnings record to calculate your benefits, and errors in this record can lower the amount you receive. It’s essential to regularly check your record to ensure that all of your earnings are properly credited.
- Check Your Social Security Statement: The SSA provides an annual Social Security Statement that shows your earnings history and estimated benefits. Check it for any discrepancies or missing earnings.
- Correcting Errors: If you spot errors, contact the SSA to have them corrected. The sooner you resolve any issues, the better, as incorrect earnings records could lead to lower benefits.
How to Prepare: Review your Social Security statement regularly. If you notice any discrepancies, address them with the SSA promptly to ensure your benefits are calculated accurately.
- Consider Spousal and Survivor Benefits
If you’re married, you may be eligible for spousal benefits or survivor benefits, both of which could increase the amount of Social Security you receive.
- Spousal Benefits: A spouse can receive up to 50% of the other spouse’s benefit at their full retirement age (FRA). If one spouse has a higher earnings record, the other spouse may be able to claim a benefit based on the higher earner’s record, increasing household income.
- Survivor Benefits: If your spouse passes away, you may be eligible for survivor benefits. These can be as high as 100% of your spouse’s benefit, depending on when you claim them.
How to Prepare: If you’re married, be sure to consider both your individual benefits and any spousal or survivor benefits you might be entitled to.
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- Contribute to Retirement Accounts to Reduce Taxes
While retirement accounts like 401(k)s and IRAs don’t directly impact your Social Security benefits, they can help you reduce your taxable income, leaving you with more to live on in retirement.
- Tax-Deferred Savings: Contributions to tax-deferred retirement accounts reduce your taxable income, which means you pay less in taxes now. This could free up more money for you to invest or save for retirement.
- Roth IRAs: If you’re eligible, contributing to a Roth IRA can provide tax-free income in retirement, which won’t affect your Social Security benefits.
How to Prepare: Contribute to retirement savings accounts, especially if you’re still working. The more you save, the better positioned you’ll be in retirement, without relying solely on Social Security.
- Stay Informed About the 2025 COLA
While you can’t directly control the COLA percentage increase, staying informed about inflation trends and the SSA’s announcements regarding the 2025 COLA will help you plan ahead. The more you understand the COLA and how it affects your benefits, the better prepared you’ll be for any changes.
- Monitor the News: Keep an eye on inflation reports and updates from the Social Security Administration regarding the COLA adjustment for 2025.
- Adjust Your Budget: If the COLA increase is substantial, you might find that it offsets rising living costs. However, if it’s smaller than expected, adjust your budget to account for potential shortfalls.
How to Prepare: Pay attention to COLA announcements in 2024 and plan accordingly to ensure your finances are aligned with your Social Security increases.
Conclusion
The 2025 COLA update will certainly help adjust Social Security benefits to account for inflation, but there are several proactive strategies you can use to increase your payments even further.
By maximizing your earnings, delaying your benefits, reviewing your earnings record, and considering spousal or survivor benefits, you can significantly boost your Social Security income in 2024 and beyond.
Stay informed and plan ahead—by making the right choices now, you can maximize your Social Security benefits and ensure a more comfortable retirement.