The announcement of the 2025 Social Security cost-of-living adjustment (COLA) of 2.5% has sparked mixed reactions. While the modest increase left many retirees and experts disappointed, financial advisor Suze Orman offers a different perspective. According to Orman, the lower adjustment signals that inflation is slowing—a positive sign for retirees, especially those on fixed incomes.
Let’s look into how the 2025 COLA affects retirees and the advice Orman shares for making the most of Social Security benefits.
COLA Can Be Good
In comparison to the substantial 8.7% increase in 2023, the 2.5% adjustment may feel underwhelming. However, Orman emphasizes that the smaller COLA reflects a more stable economy, with slower increases in basic expenses. “We all want more money,” Orman says, “but it’s actually good news, as it reflects that we are no longer dealing with basic expenses rising at a fast rate.”
This stability is especially important for retirees who depend on Social Security to maintain their purchasing power as the cost of living changes.
Social Security Benefits
Orman highlights a key difference between Social Security and other retirement savings accounts like IRAs or 401(k)s: Social Security provides guaranteed, inflation-adjusted income. “Your IRA and 401(k) investments don’t offer any guarantees, let alone a baked-in adjustment for inflation,” she explains.
Delaying Benefits
One of Orman’s top recommendations is to delay claiming Social Security for as long as possible, ideally until full retirement age (FRA) or age 70. Delaying increases your monthly benefit and ensures you receive annual COLA adjustments, even if you haven’t started collecting.
“If you delay collecting until your FRA—between 66 or 67 depending on your birth year—or until age 70, you will be entitled to a much larger benefit,” Orman says. This means retirees can maximize their income without worrying about missing out on COLA adjustments while waiting.
Claiming Benefits
Some beneficiaries choose to claim benefits early while continuing to work, but this approach has limitations. Social Security imposes an earnings limit for those who haven’t reached FRA, temporarily reducing benefits for high earners.
- Below FRA: Benefits are reduced by $1 for every $2 earned above $23,400 in 2025.
- Reaching FRA in 2025: The limit increases to $62,160, with $1 withheld for every $3 earned above this threshold.
Orman points out that these reductions are temporary. Once beneficiaries reach FRA, their benefits are recalculated to restore withheld amounts. “Your benefit is recalculated to account for what was withheld,” she says, reassuring retirees that they won’t lose out permanently.
Wage Base Increase
For future beneficiaries, another key change in 2025 is the increase in the wage base subject to Social Security tax, which rises to $176,100. This means higher earners will pay taxes on a greater portion of their income, contributing to the Social Security trust fund and potentially boosting their future benefits.
Staying Informed
As Orman advises, staying informed about changes to Social Security and knowing how benefits work can make retirement planning much smoother. Whether you’re deciding when to claim benefits, working while retired, or simply planning your finances, knowledge is your most valuable tool.
By following this guidance, retirees can make informed decisions and maximize the benefits of the 2025 COLA, even if the increase feels modest.
FAQs
What is the 2025 Social Security COLA?
The 2025 COLA is a 2.5% increase in Social Security benefits.
How can delaying benefits help retirees?
Delaying benefits increases monthly payments and retains COLA adjustments.
What is the earnings limit for working retirees in 2025?
It’s $23,400 below FRA and $62,160 for those reaching FRA.
Will withheld benefits be restored?
Yes, withheld benefits are recalculated and restored at full retirement age.
What is the 2025 Social Security wage base?
The wage base subject to Social Security tax rises to $176,100 in 2025.
