As the new year approaches, people who get Social Security are getting ready for a lot of changes that will bring both problems and chances.
Over 40% of baby boomers depend on Social Security as their main source of income in retirement, so it is important to stay up to date on these changes so that they go smoothly.
Here’s a breakdown of what’s ahead in 2025:
1. Cost-of-Living Adjustment (COLA) Increase
Social Security benefits will go up by 2.5% in January because of the annual COLA. For the typical retiree who makes just over $1,900 a month, this means an extra $50 a month.
Even though this is the smallest COLA since 2021, it shows that the economy has changed in a big way. It peaked at 9.1% in the middle of 2022 and is now only 2.6% as of October 2024.
Some people are disappointed by this smaller change, but it is in line with a drop in inflation, which means that retirees can get more for their money.
2. Higher Earnings Test Limits
People who work while getting Social Security will have to make more money before their benefits are cut.
- For those under full retirement age (FRA) in 2025:
The income limit increases from $22,320 to $23,400. Benefits are reduced by $1 for every $2 earned above this limit. - For those reaching FRA in 2025:
The income limit increases from $59,520 to $62,160. Benefits are reduced by $1 for every $3 earned above this limit.
When beneficiaries reach their FRA, they can start working again and their benefits will not be cut.
3. Maximum Benefit and Taxable Earnings Adjustments
- Maximum Benefit:
The monthly benefit for people who are eligible for the highest benefit will go up from $4,873 to $5,108. People must have delayed benefits until they turn 70 years old and earn the most they can legally earn for 35 years in order to qualify. - Maximum Taxable Earnings:
The most money that is taxed each year goes up from $168,600 to $176,100. People who make more money may have to pay more in taxes, but this change strengthens Social Security and makes sure it will last.
What These Changes Mean
The higher earning limits and increase in the COLA show that the economy is getting stronger and that inflation is under control. Higher taxable earnings may cause problems, but they are good for the long-term health of the program.
These changes show beneficiaries how important it is to plan their finances and know how Social Security works with other sources of income.
Workers and retirees can both benefit from these updates if they stay up to date. This will help make sure that retirement is safe and comfortable.
