As 2025 approaches, it’s a great time to set financial targets and create your task checklist for the year. It’s equally important to stay informed about the upcoming changes to Social Security, whether you’re still in the workforce or enjoying retirement.
To assist you in preparing, here are three significant updates announced by the Social Security Administration (SSA) in October that you should be aware of.
1. A Modest Increase in Social Security Benefits Due to COLA
The first notable change for the next year is the annual cost-of-living adjustment (COLA). This adjustment is designed to help beneficiaries maintain their purchasing power year after year.
In 2023, beneficiaries received a substantial 8.7% COLA, followed by a more modest 3.2% in 2024. The increase for 2025 will be even less significant at 2.5%, marking the smallest rise since 2021. Nonetheless, this rate is close to the decade’s average COLA of 2.6%.
What does this mean for your finances? Starting January 2025, the average Social Security retirement benefit will increase by about $50 per month. However, when you take Medicare Part B payments into account, the net gain will be somewhat less.
Although Social Security recipients typically welcome the COLA, the increase in 2025 is not expected to be a major financial relief. According to a recent survey by Motley Fool, 54% of retirees believe that the 2025 COLA will not suffice to cover the rising costs of essential goods.
On the positive side, a smaller COLA indicates a slowdown in inflation compared to the previous years, meaning prices are still rising but not as sharply as they were in 2022 and 2023.
2. Higher Earnings Limits Before Benefits Reduction
If you’re earning while also receiving Social Security benefits, you’re part of a large group of Americans.
As of November 2024, the average Social Security check is $1,925.46, which often isn’t enough to cover all expenses. This financial strain is why half of the retirees surveyed by Motley Fool are considering re-entering the workforce.
For those working while on Social Security, there are limits to how much you can earn before your benefits are reduced. These limits vary depending on whether you claim Social Security before reaching your full retirement age (FRA), which is 67 for anyone born in 1960 or later, or if you hit FRA in 2025.
Fortunately, the earnings limits will increase in 2025, allowing you to earn more before your benefits are reduced. Here’s a breakdown of what to expect:
- For early filers: For those claiming benefits before FRA, the earnings-test limit will increase to $23,400 in 2025 from $22,320 in 2024. If your earnings exceed $23,400, SSA will deduct $1 from your benefits for every $2 you earn above this limit.
-
For those reaching FRA in 2025: The earnings-test limit will rise to $62,160, up from $59,520 in 2024. Beyond this limit, SSA will withhold $1 for every $3 you earn.
If you’ve already reached FRA, you don’t have to worry about these limits. Moreover, any benefits withheld while you were under the earnings limit will be compensated through increased monthly payments later on.
3. Increased Tax Cap for High Earners in 2025
If you’re still working and earning a high income, take note that the maximum taxable earnings limit for Social Security taxes will rise in 2025. This means a larger portion of your income will be subject to Social Security taxes. While no one enjoys paying more taxes, these contributions are crucial for funding the benefits of current and future retirees.
In 2024, the taxable earnings cap is set at $168,600. This cap will increase to $176,100 in 2025.
The cap on taxable earnings is determined not by inflation, but by changes in the national wage index each year.
The beginning of a new year is an ideal time to review your financial situation and prepare for upcoming changes. Whether you’re retired or still employed, a bit of planning can help ensure a smoother year ahead.
The Motley Fool has a disclosure policy.
The $22,924 Social Security Bonus Many Retirees Overlook
Offer from the Motley Fool: If you’re like many Americans, you might be lagging behind in your retirement savings. But leveraging a few lesser-known “Social Security secrets” could significantly enhance your retirement income. For instance, one simple technique could potentially increase your annual income by as much as $22,924. Learning how to maximize your Social Security benefits could allow you to retire with the confidence and security everyone seeks. Click here to find out how to learn more about these strategies.
Explore the “Social Security secrets” »
Similar Posts:
- 2025 Social Security Overhaul: 3 Unexpected Changes for Retirees
- 2025 Social Security Updates: Key Changes for Workers and Retirees
- 6 Major Social Security Updates Starting Today: What You Need to Know
- Social Security Calculation Error Could Slash $120 From Retirees’ Benefits in 2025
- Maximize Your Spousal Social Security Benefits: Top 4 Essential Tips
Passionate about analyzing economic markets, Alice M. Carter joined THE NORTHERN FORUM with a mission: to make financial concepts accessible to everyone. With over 10 years of experience in economic journalism, she specializes in global economic trends and US financial policies. She firmly believes that a better understanding of the economy is the key to a more informed future.
