New Update: Healthcare Costs Increasing by Over 60% in Some States. Will you be impacted?

Enhancing Retirement Strategy for Northern Trust Employees: 2025 Social Security COLA Insights

For Northern Trust employees nearing retirement, navigating the economic landscape is essential for maintaining financial health. The annual Social Security Cost-of-Living Adjustment (COLA), a significant factor in this dynamic, is set to increase by 2.5% for the coming year, reflecting more moderate inflation trends compared to recent years.

Understanding the 2025 COLA for Northern Trust Employees

Originally established in the 1970s to address hyperinflation, the COLA is designed to adjust Social Security benefits in line with cost-of-living increases, offering retirees a measure of stability. This adjustment is linked to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which saw a 2.2% rise through September 2024, forming the basis for next year’s COLA determination.

While an increase in Social Security benefits is beneficial, it’s important for retirees, including those from Northern Trust, to understand potential tax implications. Higher Social Security benefits can lead to increased combined income, which may affect taxes due to the inclusion of wages, interest, dividends, and distributions from retirement accounts like 401(k)s and IRAs.

For example, a retiree receiving $24,000 in Social Security benefits while drawing $37,667 from an IRA might face higher tax obligations if inflation requires increased withdrawals. This could raise the taxable portion of their Social Security benefits, thus elevating their overall tax liability.

Tax Management Strategies for Northern Trust Retirees

To manage potential tax increases, Northern Trust retirees may consider several strategies:

Diversifying Income Sources : Using brokerage accounts can help control how Social Security benefits are taxed, as capital gains may contribute to provisional income, but the principal does not.
Strategic Withdrawals : Managing withdrawals from traditional 401(k)s or IRAs is essential, as these are taxed as ordinary income. Complying with required minimum distributions is also crucial to prevent penalties.
Utilizing Tax-Advantaged Accounts : Withdrawals from Roth IRAs or Roth 401(k)s, and contributions to Health Savings Accounts (HSAs), are exempt from federal taxes and do not impact Social Security taxes. https://www.irs.gov/

Timing Social Security Benefits Wisely

Featured Video

Articles you may find interesting:

Selecting the right time to begin collecting Social Security benefits is a critical decision. Starting benefits early may seem appealing, especially with an increased COLA, but it usually results in lower lifetime earnings. A more measured approach for Northern Trust employees could involve waiting until the Full Retirement Age (FRA) of 67 or even delaying until age 70, allowing benefits to increase by 8% annually after FRA.

Long-Term Planning for Northern Trust Retirees

Long-term tax planning is valuable for navigating retirement successfully. This approach includes multi-year strategies that can potentially reduce overall tax burdens. For comprehensive planning, it’s beneficial for Northern Trust retirees to consult with a tax advisor who can handle the intricacies of tax management effectively and align strategies with their financial and retirement goals.

Final Thoughts

Understanding the implications of the Social Security COLA is essential for Northern Trust retirees facing the challenges of inflation and tax planning. By adopting a careful financial strategy and seeking professional advice, retirees can enhance their financial foundation. Proactive financial management is key to building a stable and fulfilling retirement.

Additionally, Northern Trust retirees should note the Senior Citizens' Freedom to Work Act of 2000 , which removes the earnings test for Social Security recipients who have reached or exceeded their full retirement age. This change allows retirees who continue working while receiving benefits to do so without a reduction in benefits, regardless of their earnings. This policy can significantly increase income flexibility for retirees who choose to remain active in the workforce.

What is the 401(k) plan offered by Northern Trust?

The 401(k) plan at Northern Trust is a retirement savings plan that allows employees to contribute a portion of their salary on a pre-tax basis, which can grow tax-deferred until withdrawal.

How does Northern Trust match employee contributions to the 401(k) plan?

Northern Trust offers a matching contribution to the 401(k) plan, which typically matches a percentage of the employee's contributions, up to a certain limit.

Can employees at Northern Trust choose their investment options within the 401(k) plan?

Yes, employees at Northern Trust can select from a variety of investment options within the 401(k) plan to tailor their retirement savings according to their risk tolerance and financial goals.

What is the vesting schedule for Northern Trust's 401(k) matching contributions?

The vesting schedule for Northern Trust's 401(k) matching contributions typically follows a graded vesting model, where employees earn ownership of the matching contributions over a specified period.

At what age can employees at Northern Trust start withdrawing from their 401(k) plan?

Employees at Northern Trust can generally begin withdrawing from their 401(k) plan without penalties at age 59½, although they may also access funds earlier under certain circumstances.

Does Northern Trust offer a loan option against the 401(k) savings plan?

Yes, Northern Trust allows employees to take loans against their 401(k) savings plan, subject to specific terms and conditions outlined in the plan documents.

What should employees at Northern Trust do if they want to change their 401(k) contribution amount?

Employees at Northern Trust can change their 401(k) contribution amount by accessing the benefits portal or contacting the HR department for assistance.

Are there any fees associated with Northern Trust's 401(k) plan?

Yes, Northern Trust's 401(k) plan may have certain fees associated with investment options and plan administration, which are disclosed in the plan documents.

How often can employees at Northern Trust change their investment allocations in the 401(k) plan?

Employees at Northern Trust can typically change their investment allocations in the 401(k) plan at any time, subject to the plan's specific rules and guidelines.

What educational resources does Northern Trust provide for employees regarding the 401(k) plan?

Northern Trust offers various educational resources, including workshops, online tools, and one-on-one consultations, to help employees understand and maximize their 401(k) savings.