Social Security Transformations in 2025 Depending on Marital Status or Divorce Standing.
Retirees who have been through marriage and divorce, often qualify for spousal or divorce benefits, and every new year brings forth modifications to Social Security. Whether you're currently collecting Social Security or are planning to start your claims in 2025, now is the best time to familiarize yourself with these changes scheduled for January.
From a revised cost-of-living adjustment (COLA) to increased Medicare premiums and an adjusted earnings test limit, here's what you, as a married or divorced retiree, need to be aware of.
1. A revised COLA will marginally boost your income
The COLA for 2025 is projected to be 2.5%, which marks the lowest adjustment since 2021. This COLA is also significantly lower than the ones in 2022 and 2023, which were 5.9% and 8.7%, respectively.
For those receiving spousal or divorce benefits, this 2.5% COLA may not have a significant impact on benefits. The typical monthly spousal benefit, as of November 2024, is around $909 from Social Security. This amounts to an additional $23 per month.
The advantage of a smaller COLA is that, being tied to inflation, smaller adjustments imply that costs aren't escalating as quickly. In fact, the Consumer Price Index increased by 2.7% in November 2024, according to the Bureau of Labor Statistics, down from 9.1% in June 2022.
Decreasing inflation is more likely to impact your monthly budget than the COLA, meaning a smaller adjustment is favorable in the long run. However, for those expecting to use the extra income to make retirement more affordable, the 2.5% adjustment could be disheartening.
2. Medicare premiums will significantly cut into your benefits
In 2025, Medicare Part B premiums are projected to rise, potentially having a more substantial impact on retirees with smaller Social Security checks, such as those receiving spousal or divorce benefits.
Most people have their premiums deducted from their Social Security checks, and starting in 2025, you can anticipate more of your benefits being withheld. Part B premiums will cost $185 per month in 2025, an increase of $10.30 per month.
If your budget is tight, an increase of $10.30 may be a substantial hike. Besides, considering the COLA will only raise the average spousal benefit by $23 per month, the actual increase for those on Medicare would only be around $12.70 per month after accounting for the premium increase.
3. The earnings test limits are escalating
If you're working while receiving any form of Social Security benefits, including retirement, spousal, or divorce benefits, you might be subject to the retirement earnings test.
This test is essentially an income limit that applies to people receiving earned income, like a salary, in addition to Social Security benefits. It affects only those who haven't reached their full retirement age (FRA), and the limits differ depending on whether you'll hit your FRA in 2025 or not.
- If you will reach your FRA in 2025: Your benefits will be reduced by $1 for every $3 over the limit of $62,160 per year. This is a rise from the 2024 limit of $59,520 per year.
- If you won't reach your FRA in 2025: Your benefits will be reduced by $1 for every $2 over the limit of $23,400 per year. This is also an increase from the 2024 limit of $22,320 per year.
Much like Medicare premiums, the earnings test limits could have a disproportionate impact on those receiving spousal or divorce benefits due to these payments typically being smaller than average retirement benefits. If your earnings exceed the limit significantly, you could be liable to have most or even all of your benefit withheld.
However, the good news is that with both the limits increasing in 2025, you can earn more before facing benefit reductions. Regardless of how much of your benefit is withheld, your payments will be recalculated at your FRA.
Spousal and divorce benefits can be a critical support system for many older adults; nonetheless, it's crucial to comprehend how any changes to Social Security could influence your retirement. By keeping these updates in mind heading into 2025, you can gear up to be as prepared as possible.
- Understanding the changes in finance, particularly the increase in Medicare premiums, is crucial for retirees receiving spousal or divorce benefits, as it might significantly cut into their benefits and budget.
- For individuals planning for retirement in 2025, it's essential to consider the impact of the modified earnings test limits on their money, especially those who are receiving spousal or divorce benefits, as these changes could have a substantial impact on the amount of benefits they receive.
