What changes are coming to social security in 2025?

Ralph
00:00:00

Are you losing sleep wondering if social security will be there when you need it? If you are, I'm going to tell you right now, you're not alone because today, we're going to tackling the burning question that's keeping so many hardworking Christians up at night, and that's what changes are coming to social security in 2025, and even more importantly, and I really want you to stick around for this. How can you protect your financial future regardless of these changes? There is going to be a lot to cover today, but I hope you join me.

Announcer
00:00:29

Welcome to the Ask Ralph Podcast where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:00:57

Well, thank you for joining me today. I'm your guide as you seek to master your finances with a Christian perspective. Now, if you missed yesterday's show, we talked about 9 retirement expenses you might not have considered. So make sure you go catch it up because I gave you some eye-opening costs that can impact your retirement planning and trust me, understanding these hidden expenses is crucial if you really want to get to that financial peace of mind. So again, check it out.

Today's question comes from Cecily and Cecily comes to us all the way from Anchorage, Alaska. I think this is my first question I got from Alaska. So Cecily, thanks for sending it in. And here's her question. It says, "Ralph, I'm 55 years old and honestly, I'm struggling to sleep at night. Every time I see another headline about social security changes, my stomach ties up in knots. I've worked hard for over 30 years, paid my taxes and try to do everything right. But now, with all these changes coming in 2025, I'm terrified I won't have enough to live on. My parents struggled in their retirement years, and I still remember how my mom had to count every penny at the grocery store. I promised myself I wouldn't end up in that situation, but here I am, worried sick about my future. My husband and I have some savings, but we're not sure if it's enough. We've got two kids in college, and between their education costs and trying to save for retirement, we feel stretched thin. Every time I look at my social security statement, I wonder if the numbers I'm seeing today will mean anything by the time I retire. Will these changes affect when I can retire? How much will I receive? I'm scared of making the wrong decision and paying for it for the rest of my life. Ralph, can you please help me understand what these changes really mean for someone like me? What should I be doing right now to prepare?"

Well Cecily, at 55, you've got plenty of time to make some changes and prepare. But I thank you very much for your question, because this is a question I hear all the time. And it's that fear of not having enough money for retirement. And many also people have felt that same way that they have those memories of their parents struggling. So I hear your desires to not get yourself into that position where you're struggling.

I also hear your desire to balance that with your children's needs. I know you're trying to save for retirement and you're trying to battle that anxiety. And you've got that worry about those right decisions, but fear not, because today, even though I'm fighting a little bit of a cold, might sound my voice is a little weird,

I have got the answers for you. Now this show thrives on your questions, but today I want to ask you some questions. We've built a listener survey, and I want your honest opinion about the show. And listen, it'll only take about five minutes no more than that. And here's the best part. If you fill out the survey, you'll automatically be entered into a $250 Amazon gift card drawing.

That's right. For everybody who completes the survey and you do that by going to askralphpodcast.com/survey, you'll be entered into that contest. And listen, your answers are valuable to me and they're going to shape the show moving forward. Now to be in the contest, I need your survey completed by the 10th of December at midnight, because the 11th of December, one lucky person who took the survey is going to get that $250 Amazon gift card. And I want to hear from you. In fact, I would love to hear from you. Tell me about your feelings about the show. Again, that's at askralphpodcast.com/survey. Again, one more time, askralphpodcast.com/survey.

Cecily, your situation reminds me of Proverbs chapter 13:22. You know, I always want to start with scripture. And it tells us this. "A good person leaves an inheritance for their children's children, but a sinner's wealth is stored up for the righteous." And think about that for a minute, Cecily. That powerful voice reminds us that proper financial planning isn't just about us. It's about creating a legacy. And I hear that in your question. You're talking about your kids are still in college, but you want to make sure that you're putting away for retirement. And you want to bless the generations to come. And that's exactly what we're going to explore today on the show. So let's get to it.

Now, let me tell you about something that happened just last week. I have a client; we’ll say his name is Robert. He came into my office. He's got the newspaper. Yes. Robert's one of those guys that still reads the printed newspaper. I'm seeing fewer of those every day. But he saw this article about social security changes and his hands were literally shaking. Like you Cecily, he was worried about his retirement security. And we worked through those changes together and the good news is Robert left with a smile on his face, but more importantly than not, he had a solid plan.

And this, Cecily, everybody else listening, you need a solid plan as well. So let's talk about first what are those three major changes you need to know about as it relates to social security. And I got a little bit of a bonus one. The first is the Cost of Living Adjustment. You might hear this called COLA in the news.

So for 2025, that will be 2.5%. So basically they're going to increase those collecting social security, their monthly payment by 2.5%. Now, so what does that mean to the average social security retiree? According to my research, that means about a $49 increase in their monthly check. We're not talking about a lot of money here bringing the average check.

And I was interested to see this. The average social security payment for an individual is $1,976. And we'll talk about why you and probably not going to be able to live on that in retirement. We'll save that for a few minutes. Now for married couples, that social security increase is going to go up by about $75 or to about $3,089 monthly.

Those are the statistics that are published by the social security administration. So that's the first big change. The cost-of-living adjustment. If you listen to the show a couple of weeks ago, I talked about sometimes there isn't, even our cost-of-living increase, so it's good that we're seeing one. I'm not sure that's going to keep up with inflation.

Let's move on to the second thing. And that's what they call the Full Retirement Age. You might hear it called FRA. So that's changing as well. So here's the issue there. If you were born in 1959, I'm just going to pick that number as one of the ones that we're going to talk about today. Your FRA, that full retirement age is going to be 66 years and 10 months.

Now you might be saying, Ralph, what are you talking about? So here's what I'm talking about. This really makes a difference that you understand this because when you lock into social security, if you go before your full retirement age, you're going to permanently reduce your monthly payments. Just like if you go above that full retirement age, you could increase your monthly payments.

And I've talked about that on show many times, but if you were born in 1959 for 2025, your FRA, that full retirement age is going to be 66 years and 10 months. So basically what that means is that at 66 years and 10 months, you'll be able to collect the full value of your social security benefits. Now let's talk about the next little change and that's the wage cap for social security tax.

Now that's going to increase to $176,100. You might be saying, Ralph, what does that mean? So it's a real simple situation. So when you have W2 like traditional earnings, you only pay social security tax up to what they call the wage cap. A lot of people aren't impacted by this because they don't make this much money. But that is now going up to $176,100.

So basically what that means is let's say you had a job and your total salary was $200,000. Well you only pay social security taxes on the first 176,100. Once you reach that 176,100, a lot of my clients that do that, they say, Ralph, I got my bonus. I hit the social security max. And that has gone up quite a bit over the last few years. Yeah, I think it's gone from 140 to 169 to 176.

So you can see what's going on. They're making that wage cap grow. So once you hit that total 176,100, you don't pay any more social security taxes in that particular year. And then here's the little piece of bonus information. And that's you'll need to earn $1,810 to get one social security credit and $7,240 for all four credits in 2025.

Again, you might be saying, Ralph, what in the world are you talking about? Well, in order to collect social security, you have to basically have 40 quarters. Well, that's a credit basically. So social security says you have to make at least to this much money during these many quarters to be vested so that you can collect social security and what they've done basically, is they said you need to get at least $1,810.

So that would be your earnings you have to make in a particular quarter and then $7,240 for all four quarters in 2025, for that to count towards your social security benefits. And I may do a show talking about that in the future. And see, that's what we got to be aware of. So those are really the big three changes, and I added that little bonus in. So now let's continue with Cecily's question. And I got a story to tell you about that.

And this is going to relate directly to what you're asking Cecily. Now, I guess it's about 10 years ago. I was sitting across from a client. We'll call him James. And James had the same fears as you Cecily. He was worried about social security, and he was putting off his additional retirement savings cause he was really counting on that social security benefits to meet all his needs. And here's the thing.

When I sat down with him, we went over his stuff, we discovered together, and when we found out that the reality of this wasn't going to be good for James. So let me jump into that because it really changed his entire financial trajectory. Tripping on my words. Like I said, I'm fighting a little cold today, so I apologize ahead of time. So here's the reality. You're not going to want to hear this. But social security was never designed to be your only source of retirement income. Unless you're living under a rock, you also know that the system is facing some significant challenges. Now, I'm not one of these people that's trying to scare everybody. I don't think that social security is going away entirely. But we have to come to a reality check that changes have to come. And we've got to be prepared for those. We've got some difficult decisions to make as a country. And it's going to be a battle.

There's going to be some real division. It's going to be tough. We're going to have to make some difficult decisions about what that FRA, that full retirement age is. I got a feeling they're going to be pushing that closer to 70. There may be some discussions about if you make over a certain amount, you're not going to be able to collect a hundred percent. I'm not saying I take any position or I'm in any camp.

I just think the reality is we're going to have to make some tough decisions because we don't have the money to even pay the current social security beneficiaries. And if you don't understand that, we had some people over yesterday and we were talking all about this. The social security isn't this big trust fund of all this money that's been set aside for years.

It just doesn't exist anymore. I think there's a little bit of a trust fund there. But truthfully, the truth is the people who are working right now are paying in to meet the benefits of the people who are collecting right now. And people are living longer. People are collecting more. A lot of people are collecting at that early age. So we're going to have a battle, and you got to pay attention to what's going on in the press, but there is going to be some difficult decisions that need to be made. And like I said, they might keep pushing up that earnings cap so that they're getting a high, like I said, it's 176,100 this year. Wouldn't shock me if they raise it another $10,000 in the next few years. So with all of that said, I really think we need to start thinking about what else can we do?

Like I said, I don't believe that social security is going away entirely. I think it's going to be there. But let's talk about how to boost your income beyond social security. Because as I said, I think relying solely on those benefits is simply not going to be enough for most people's retirement lifestyles. And especially, think about this. If we see the inflation again like we've seen the last few years, it is going to decimate those people who are trying to live on social security alone.

So what are some ways that you can build other income sources or refine your income sources to protect you against this. The first thing. This one is critical. This is what I call investment diversification. You got to start building in a diversified investment portfolio that includes these things. And like I said, I'm not a financial broker. I would encourage you to have a meeting with your broker.

If you don't have one, go find one, but here's some things that I think you need to look at. You need to look at growth stocks. Those are your long-term appreciation stocks. You've got to have those as part of your diversified portfolio. You don't want to put all your eggs in one basket. And then you also want to have dividends stocks. That's to provide that regular income streams. You might want to add some blue-chip stocks for stability.

And then one of the things that a lot of people overlook is you want some government and corporate bonds for steady, reliable income. So you want to kind of build all this together. I've used the analogy of a garden. You know, my grandfather was a gardener. And you want to set up your garden with each of these different areas so that if one area is not doing so well, you have this other area to fall back on.

So that's the diversified portfolio piece. The second thing. If you'd listen to anything I say today, I've said this many times as well. You've got to have multiple income streams. That's what I call your financial freedom portfolio. As I said before, that might include rental properties. And I know not everybody's into rental properties. I think you've got to have a stomach for it.

I had a client in the other day, we were talking about this. They said, Ralph, should I buy a rental property? And I said, it depends. It really depends on your situation. Maybe you want to consider that phased in retirement or maybe do some part-time consulting in your area of expertise. Listen, I think that's beneficial financially and I think it's beneficial mentally because you stay engaged. The clients that I have who have retired, who have stayed engaged, frankly, are living more prosperous lives. You also want to look at dividend paying investments and maybe some side business ventures based on your skills and interests. Kind of along the same line of those consulting areas.

But maybe you want to start a small little business. I've got a lot of clients that have retired and set up small businesses and they find a lot of value in that. So that's that second thing. And that's multiple income streams. Let's look at number three. And that's retirement account optimization. This is the time to really start looking at, I don't care what age you are.

You could be 25, 35, 45, or even 55 as you Cecily. It's time to take a look at those retirement accounts and make the most of tax advantaged accounts. And what am I talking about there? I'm talking about maximizing your 401k contributions, especially if your employer offers matching. Like I said, we had some people over at the house yesterday, we had a nice dinner and they brought their son with them.

Their son's a younger guy and we were having this discussion about Ralph, should I put, you know, should I max out my 401k? And I said, well, listen, dude, here's the deal. If your employer is matching, you want to at least get to that point, you've got to look at your budget and be realistic, but if they're matching, I did a show about this about a week ago, it's kind of this analogy. You're walking down the sidewalk. And you see a hundred-dollar bill laying on the sidewalk. And you decide, you know what?

I'm too busy. I'm just going to walk over it. Well, that's the same thing. If your employers offer in matching, if you're not at least going up to that matching you are leaving the hundred-dollar bill on the sidewalk. Don't do that. Another thing you want to talk about when we talk about these tax advantage accounts is maybe using both traditional and Roth IRAs.

Now, if you've covered by a pension plan at work or a 401k, you're probably not going to be able to do a traditional, that's more of an individual discussion, but maybe look at doing some Roths IRA, some Roth IRAs to subsidize that retirement. I've done shows on those, I encourage you to check those out. And listen.

Here's another big one. If you're like me and you've reached that age 50, I'm 52 now, but if you've reached that age, you got to think about doing those catch-up contributions. You can add, it's not the kind of ketchup you put on French fries, that's not what I'm talking about. What I'm talking about is those catch-up contributions.

So once you reach age 50, Let's say the 401k limit for everybody below 50 is 20,000. Well, once you reach 50 and I don't have the number right in front of me, but let's just say it's 24,000. Basically, what that means is that as you age, once you hit that 50-year-old deal, you'll be able to put more into the retirement.

So it's a great time to multiply those savings. And maybe you're paid down on your mortgage. Maybe you don't have a mortgage. You've reached the pinnacle of your career. Maybe you don't have kids in college. This may be an ideal time to put more than what I called for, a week ago, I did a show about how much should I put in retirement.

I said about 15%. This might be the time to look at how to make that bigger so that you can take advantage of that higher limit. And remember this, contributions to traditional retirement accounts provide immediate tax benefits and at the same time, secure your future. You got to listen to me on this.

Every dollar you put away in a traditional pretax retirement account saves you money. And it's dramatic. Think about it like this. For every hundred dollars that you put away in that traditional retirement account. Like I said, that pre-tax retirement account. For most people, that's going to save them about 30 bucks between federal and state taxes.

So it's only costing you $70 to put away a hundred. That's a 30% immediate return on your investment. Now the other thing you want to consider now, as you're looking for ways to look outside of that social security is what I call cashflow management. And this is something you should be doing anyway, but as you prepare for retirement, it's a great time to implement a strategic cashflow plan.

Everybody needs one of these. And carefully track all of your income sources. And why do you want to have the strategic plan? Because you might have months when you're going to have higher expected income. Maybe you can use that money to put money into the retirement. Maybe you're going to get a tax refund. But you also have that situation where you might have expenses.

Like a lot of people pay for their property taxes at one time during the year. So you got to be thinking about that, or maybe you pay for your auto insurance or your homeowners insurance. Maybe you have a vacation that you have planned. Maybe you have something that's just a one-time expense, but it's not spread out equally over the year.

And that's where people get themselves jammed up. So especially in retirement. So as you're developing that retirement plan, also think about that strategic cashflow plan so that you don't find yourself in trouble one month with the anticipation of that income coming in the next one, because then you got to make difficult decisions.

Then you go hit that credit card, or maybe you take a home equity loan or something that's not necessarily great for you. Another thing you want to be doing all the time is what I call asset evaluation. And that is take time to thoroughly assess your current assets and identify opportunities for growth.

I see so many people that don't take advantage of meeting with their brokers. I've got a broker myself and he'll say to me, Ralph, he says, most of the time, I don't hear from my clients. And I said, well, I guess that's a good thing. He said, yeah, it's a good thing. But which means they're not upset with him.

It's a good thing. But are they really looking at their investment portfolio to see if they need to make some changes? You know, and maybe you want to upgrade your skills because maybe you could lead to more income. That's another thing you could consider. Look for underutilized assets that could generate additional revenue. All of those things go into that whole asset evaluation. Meet with your broker.

Sit down, go over what you have and see if you need to shuffle things around because the problem is your needs at 35 or your retirement plans at 35 are not going to be the same at 55. You've got a much shorter investment horizon. And you got to start thinking intentionally about how you want to structure things because you can't afford a deck, a yeah. Like I said, this cold is really getting to me, but you don't want to get yourself involved in the economic downturn and then go look at your investments and they're not set up the way you want it. And remember, the goal isn't just to survive in retirement. And Cecily, that's what I hear you saying. Your fear at night, what you're worried about is that same thing you saw your parents go through. Their struggle and I get it. And that's what I'm saying. The goal isn't just to survive in retirement, it's to thrive. And that's what I want to see you do. And I think that by implementing these strategies while you're still working, you're setting yourself up for a more comfortable retirement and listen, you're not going to be dependent solely on social security. And let me assure you this.

I've seen countless clients transform their retirement outlook by taking these steps. You can do it, Cecily. Anybody else, listen, you can do this. It does require a few things. It requires dedication and planning. But this is the truth. This is a Christian show, but with God's guidance and sound financial principles, you can build that secure future that extends well beyond the social security benefits. Now I'm going to share some action items with you that you can take right away.

But first I want to ask you this. We are definitely in a holiday season. If you're watching this on YouTube or Rumble or on one of the shorts, I got this nice red, my wife said, you look like Santa Claus going out of the house today. I said, yeah, well, it's the Christmas season. But maybe you're one of those people that's losing sleep wondering how you're going to afford everything on your holiday list this year. Maybe you're one of my clients that says, Ralph, I am sick and tired of starting every new year buried under a mountain of holiday debt, the credit cards and all those things. And I hear you want to create those magical Christmas memories, but you don't want the financial stress that comes along with it. Well, I'm going to ask you right now to discover peace of mind.

I wrote a guide, it's called surviving the holidays without going broke. And in that guide, which I'm going to encourage you to get, I give you a proven budget system that actually works. I share some smart shopping strategies to help you slash your costs. And we're all trying to do that, right. I show you ways to create that magical memories without maxing out credit cards.

I also have a discussion on teaching kids gratitude and what I call this gimme more world and we all need to find ways to show our kids how to understand gratitude and finally, a round out the guide with the central part of it. And it's how to keep faith and family at the center of your celebration. Listen. Don't let January's credit card bill steal that holiday joy.

Download your free guide today. It's really simple to get it. You go to askralphpodcast.com/christmas and listen, make this your most meaningful and dare I say, affordable holiday season yet. Your stress-free holiday season starts here. Go to askralphpodcast.com/christmas. Now, write this down. We'll say it one more time. askralphpodcast.com/christmas. Now I promise you some action steps that you can take today,
and here they are. Number one. First thing I want you to do. Calculate your expected social security benefits using the ssa.gov calculator. Go right to ssa.gov and calculate your benefits so you can see what to expect. And then the second thing I want you to do is start building additional retirement savings through various investment vehicles.

We talked about some of those. Start to diversify. Start to look at your assets, start to put more away. And then, like I said, number three, consider increasing your contributions to retirement accounts. Maybe you say, Ralph, I've never really done that stretcher. Yeah, I did hit 55. Now I could put more in, but I've never done that. I'm going to encourage you to do that.

You don't have to do it all at once. Have a long-term approach. Maybe you increase it by 1% or 2%. And then in another six months you do the same thing. Another thing I want you to do is start looking for those alternative income streams. Is this the time to buy a rental property? Is this the time to start that small business or do that consulting work. And last but not least, review and adjust your investment portfolio regularly.

Don't just set it and forget it. You pay your broker based on what you own. And you know, with the work they're doing, well sit in front of them, have a face-to-face conversation. Understand where your investments are, probe them with questions. Tell them about your fears and worries. It's okay. You might not agree with what your broker says.

It's your money. You decide what you want to do, but you've got to do that. Now tomorrow, I'm going to be discussing 11 powerful tips to break free from that paycheck-to-paycheck cycle and really how to build true wealth. And that's an episode you don't want to miss because I'm going to share some transformative strategies that could change your financial future. So let your friends and family and anybody you know, this feels like they're living that paycheck-to-paycheck cycle, that they can break beyond that and build true wealth. Like I said, you don't want to miss that.

And remember this. My passion is to help you achieve financial success. I want to see you live out your dreams, and I want to see you grow in your faith. And I know together, working together, we can master your finances from that Christian perspective. So as I always say with my deep, I feel like I have a cold voice, is stay financially savvy out there and God bless you.

Announcer
00:26:14

Thank you for joining us on the Ask Ralph podcast, and with a simple click to subscribe, we'll invite you back to our next episode. And remember, financial issues don't have to be complicated, just Ask Ralph.

The information contained in this episode of Ask Ralph is based on data available as of the date of its release.

Saggio Accounting plus and Ask Ralph Media, Inc. Is under no obligation to update this content if changes occur.

Applying this information to your specific situation requires careful consideration of all facts and circumstances, and any information provided is not to be considered as financial, tax, or legal advice. Please consult your tax advisor or attorney before acting on any material covered.