Personal Finance

Social Security 2025: 3 Tips to Retire Comfortably On a Fixed Income In the New Year

Chris MacDonald

Published: January 7, 2025 12:10 pm

Living off of social security payments alone is a reality millions of Americans may face in the years to come, with a significant percentage of baby boomers (more than 40%, according to a recent study) having little to no retirement savings set aside. This will mean that whatever the government pays out each month to retirees is what these retirees will be forced to live off of. And given that the maximum social security payout for 2025 is set at around $4,000 per month for those who retire at full retirement age (FRA), finding ways to live off of such a sum (particularly in expensive parts of the country) can become a task unto itself. 

Yes, social security payments do increase most years due to cost of living adjustments tied to the rate of inflation. However, with the changes in how CPI has been reported since the 1980s, retirees really haven’t kept up with some measures of inflation (which have the actual inflation numbers much higher than the reported figures).

That said, for those looking to live off of social security alone in 2025, here are three tips I’ve come across shared by other personal finance experts I think can be helpful in shaping a strategy to live well in one’s golden years.

Key Points About This Article:

• Those looking to live entirely off of social security payments in 2025 may have a much more difficult task ahead of them than retirees in previous generations.
• Here are three solid tips from other personal finance experts I’ve come across I think retirees may want to consider when putting budgets together.
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

2025 Social Security Changes

Baby boomers looking to budget for retirement do have a few upcoming changes to note in 2025 that will somewhat alter the calculus of how to budget over the next year. 

For one, the full retirement age (FRA) will see a slight increase for those born in 1959 from 66 years and 8 months to 66 years and 10 months in 2025. This change is part of ongoing legislative adjustments that aim to accommodate the increasing life expectancies of the population. So, those looking to claim full benefits without penalty will need to make note of this two month change over the coming year. 

On this note, it’s important to consider that while individuals reaching their FRA can claim their full Social Security benefits without any reductions, those who choose to claim Social Security as early as age 62 may see a stark reduction in benefits. This reduction can be as much as 30% less than what they would receive at their FRA. So, baby boomers thinking about claiming early retirement may want to factor these reductions into their budget.

In terms of more positive news (depending on how you look at the glass), the 2020 cost of living adjustment (COLA) will come in at.5%. This adjustment will mean that retirees in 2025 will see a 2.5% increase in their monthly payments, though this will be the smallest increase seen since 2021.

Now, this adjustment will also mean that inflation has come down (and it has), but for many retirees battling healthcare expenses and other categories that have risen faster than inflation, this increase may not be enough to keep up with rising expenditures, so that’s something to keep in mind.

Tips to Retire Comfortably

There are certainly plenty of great pieces of advice out there for seniors looking to make the most of a fixed budget over the coming year. Among the best pieces of advice I’ve come across are the following three nuggets.

First, retirees may want to consider budgeting for reduced benefits over time. Building a budget with some sort of “margin of safety,” as iconic investors like Warren Buffett like to suggest, allows for peace of mind if one line item on the budget comes in higher than expected. No one can predict the future, and we’re all just one accident or health-related incident away from being over budget. So, factoring in some leeway into one’s budget to handle the sort of financial shortfalls that savings and pensions otherwise may have covered for other individuals is a good rule of thumb.

The second most widely-spread piece of advice I continue to come across is for baby boomers who are employed to consider delaying taking benefits beyond their full retirement age. Doing so could allow seniors to see higher social security payments (up to 8% to age 70) over time. If one expects to spend a higher amount than their current social security payments would be, and they’re able to work, delaying taking benefits can be a good course of action in such cases.

Finally, exploring additional revenue streams in retirement, particularly for those with very tight budgets, can be a consideration for those able to do so. Whether it’s part-time work or passive income opportunities (such as renting out property), this is a strategy millions of retirees can potentially pursue to help ease their way into retirement. Indeed, diversifying income sources can provide greater financial flexibility and reduce dependence on Social Security payments alone. But as is the case with each of these potential tips, consulting a financial advisor to build out a plan can help with the entire process, and is something that I think is worthwhile.