If you happen to be in your retirement years and are drawing Social Security, you should be aware that a huge change is coming over the course of the next year. A major adjustment to your benefits is on the way, along with an increase in the earnings-test limit. What does this mean for workers? You are going to have to earn more in order to qualify for the Social Security program. Those who are on the higher end of the earnings spectrum will lose more of their income to taxes.
According to the Motley Fool, just because Social Security has been around for decades now does not mean that it isn’t susceptible to changes in the rules. Just about any and all programs from the government can be altered and changed over the years. This is an absolute must because the circumstances of our people and way of life are always in flux to some degree. One of the big reasons it needs to adjust is because of inflation.
In 2025, there are a number of changes that are coming that could have major impact on retirees who depend on Social Security in order to provide income to cover their living expenses. But it’s not only those who are already drawing income that need to be aware of what’s going on, but works as well.
“Social Security benefits are eligible for automatic cost-of-living adjustments (COLAs). The purpose of COLAs is to help recipients maintain their buying power as inflation drives living costs upward. At the start of 2024, Social Security benefit rose 3.2%. Next year’s COLA, however, may not be as generous. Initial estimates are putting that number at 2.63%, but that’s subject to change based on how inflation trends during the third quarter of the year,” the report said. “Seniors on Social Security should prepare for a smaller COLA in 2025. That could mean adjusting your spending to try to reduce expenses, or dabbling in the gig economy for extra cash.”
Seniors who are drawing income from Social Security are also allowed to earn money from working. However, individuals who haven’t yet reached retirement age have to keep income limits in mind. If you make more than the limit that is part of the yearly earnings test-limit, you’ll end up having some of those benefits withheld. The good news is you’ll have them repaid to you after you hit full retirement age.
As of this writing, in 2024, the earnings-test limit is $22,320. If you happen to reach full retirement age by the end of this year and haven’t hit that yet, the limit will be $59,520. Next year, the earnings-test limit will probably increase, and that will allow you to earn more money without that extra hurting your Social Security benefits. The Motley Fool recommends that if you have been considering ramping up hours at your part-time job or increasing gig work you’re doing, you should wait until after January 2025 to do so.
Social Security’s main source of funding is payroll tax revenue. But it’s not a given that workers will pay Social Security taxes on their entire income. Each year, a wage cap is set to determine how much earnings are subject to Social Security taxes. Currently, that cap sits at $168,600. But in 2025, it’s likely to rise.
Current price: Now if you don’t expect your earnings to be higher than $168,600 in 2025, then this is nothing to worry about. But if you’re a higher earner, now may be the time to sit down with a tax professional and work on some strategies to lower your tax burden overall. And if you’re maxed out in that regard, budget carefully to account for the fact that you may lose more of your paycheck to Social Security taxes in the coming year.
In order to draw income from Social Security after you fully retire from the work force, you have to earn a specific amount of money and pay taxes on that sum throughout the years of your career. There a number of other options you have for drawing Social Security without working, such as spousal benefits. However, if you don’t have that available to you, then you’ll have to make sure that you earn enough money to get the benefits when you reach retirement age.
“For that to happen, you need to accrue 40 work credits in your lifetime. And you can only earn up to four per year. The value of a work credit is currently $1,730. But in 2025, you’ll most likely need to earn more than that for a single credit. So if you’re a part-time worker who’s trying to qualify for Social Security, pay attention to what the earnings requirement per credit becomes. You may need to increase your hours to ensure that you’re getting the four credits you’re after in the coming year,” the report concluded.
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