A lot of the Social Security program is updated every year to make sure that payouts keep up with earnings and inflation.
The Social Security Administration says that these benefits make up at least half of the retirement income for about half of all retirees in the United States.
This means that seniors and workers who are getting close to retirement should know about these changes. There are a lot of wrong ideas about the program, which is a shame.
The Nationwide Retirement Institute, a group that works with insurance and finances, says that a lot of people have basic wrong ideas about Social Security.
This was found in their Social Security Survey for 2024. People who are retired might be surprised by these four big changes to Social Security that will happen in 2025.
4 major changes that Social Security beneficiaries need to know for 2025
The cost-of-living adjustment (COLA) for Social Security benefits will be 2.5%.
The Nationwide Retirement Institute says that 66% of people asked this summer gave the wrong answer to the question “Social Security is not protected against inflation.”
However, 61% of adults thought this false statement was true: If deflation happens, your monthly Social Security payments will be cut.
Because of this, some people will be glad to learn that cost-of-living adjustments (COLAs) almost always protect the purchasing power of Social Security payments against inflation.
The COLA that is applied to benefits each year is based on the change in the Consumer Price Index (CPI-W) group during the third quarter of the previous year.
In Q3 2024, the CPI-W went up by 2.5%, which means that monthly payments will go up by the same amount in 2025. But COLAs can only be positive, and payments never go down, not even when prices drop.
There would be no changes if inflation was zero or less in Q3. The SSA thinks that the average monthly payment for a retired worker will go up from $1,927 in 2024 to $1,976 in January 2025.
In 2025, this means that the average retired worker will get $588 more a year, or an extra $49 a month.
American workers will pay more in payroll taxes
74% of people who answered Nationwide’s poll got this wrong when they marked it as true: A worker has to pay Social Security taxes on all of their pay.
There are limits on how much of their income is taxed, even though payroll taxes pay for Social Security. To keep up with changes in the average wage, the highest taxable earnings limit is usually raised every year.
For instance, the highest amount of money that is taxed right now is $168,600. In 2025, it will go up to $176,100.
So, in 2025, people whose income is more than $176,100 will not have to pay the Social Security payroll tax. Employees usually put away 6.2% of their pay into Social Security, and companies do the same.
A W-2 worker might have to pay $10,453 in payroll taxes this year. This will go up to $10,918 (6.2 percent of $176,100) next year. This could mean that some workers will have to pay up to $465 more in payroll taxes in 2025.
The maximum Social Security benefit will increase
A study that looked at people across the whole country found that 51% did not agree with the idea that Social Security payments are capped, while 40% got it wrong and said it was true.
There is a maximum gain. For a worker to get the biggest monthly payments, their income must be at least as much as the largest amount of money that is taxed for at least 35 years.
Also, they would have to wait until they were 70 years old to start collecting Social Security. After that, they would be able to get all of their delayed retirement payments.
The formula for Social Security payments is changed every year to reflect changes in the average wage. This means that the highest payout usually goes up every year.
For instance, the highest monthly payment that new retirees can get right now is $4,873, but by 2025, it will be $5,108.
Retirees who claim before the full retirement age will be able to earn more money
The nationwide study found that 44% of people thought this statement was not true. If you keep working after your full retirement age, some of your perks may be taken away.
Some of a person’s benefits will be taken away if they start getting them before they reach their full retirement age and their work income is higher than the retirement earnings test (RET) limits.
For people who do not reach FRA during the year, the RET limit is lower. For claimants who do reach FRA during the year, the limit is higher.
To keep up with changes in the average pay, the RET limits are often raised every year. It will be between $23,400 and $62,160 next year.
For every $2 in earnings above $23,400, retirees will lose $1 in benefits for every year they are under their FRA. People who retire during the year and hit their FRA will lose $1 in benefits for every $3 they make over $62,160.
Also see:-Extra Social Security payment announced in November – Total change now official
