Social Security is constantly changing. Every year, the program is revised to ensure that recipients receive the best care possible and that the system remains current with societal developments. Knowing about these changes is critical for new retirees, so if you plan to retire in 2025, here are some things to consider.
How Your Social Security Benefits Are Determined
Social Security payouts are calculated based on your 35 greatest earning years, which most people are aware of. Employees must pay payroll taxes to the Social Security Administration (SSA).Your benefit will be computed based on how much you paid in taxes, which is equivalent to how much you earned.
Communicate any changes in work or wages to the SSA. Check your “my social Security account” or create one to confirm the information the SSA has about you is right. It’s quicker to change the record now rather than waiting years.
Full Retirement Age
According to the Social Security Administration (SSA), “full retirement age (FRA) is the age at which you are entitled to your full monthly payment based on your career earnings record.” This age fluctuates depending on your year of birth and has been altered over the years to increase from 65 to the present 67. Waiting until age 70 to claim benefits may benefit you as it is the maximum age for receiving benefits.
Cost-of-Living Adjustment
Social Security beneficiaries receive annual cost-of-living adjustments (COLA) to account for inflation, despite having a fixed income. In 2025, the COLA will be 2.5%, increasing the average retirement check by $48 a month. The COLA is determined using a formula that includes third-quarter inflation statistics from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Attempts to modify the CPI used for the CPI-E, which skews data for those over 62 and gives more weight to areas like healthcare, have yet to be enacted.
Income Taxes on Benefits
Although most states do not tax Social Security benefits, around 40% of beneficiaries are subject to federal taxes, according to the Social Security Administration (SSA).While Social Security income is not taxed, individuals with additional sources of income, such as retirement funds or passive income, may still be subject to federal taxes.
Individuals who file as single and have not attained FRA are not taxed on Social Security payments if their provisional income is under $25,000, whereas married couples filing jointly have a higher threshold at $32,000. If provisional income is between $25,000 and $34,000 for single taxpayers or $32,000 and $44,000 for joint filers, up to 50% of Social Security benefits may be taxed. For incomes above certain thresholds, up to 85% of benefits may be taxed. Starting in 2025, persons who achieve full retirement age will not be subject to taxes on their Social Security income.
Earnings Test
Receiving benefits while working is possible, but may be lowered by an earnings test before reaching FRA.
If you are below FRA for the whole year, the SSA will lower your benefits by $1 for every $2 earned above the yearly limit. This only applies to earnings up to the month before attaining FRA. In 2024, the earnings limit for recipients who have not reached FRA is $22,320, which will grow to $23,400 by 2025.
