Whether you are already retired or plan to retire soon, you need a plan for your retirement income. Social Security will be a big part of this plan for most people, so it is important to know the most up-to-date information on benefits.
The Social Security Administration (SSA) recently proposed some big changes that will happen in 2025.
One of these is the new annual cost of living adjustment (COLA). Here are some important changes to Social Security that will happen next year and what you need to know about them.
5 new Social Security changes that will become effective in January 2025
Over 72.5 million people depend on one of Social Security’s benefit programs, so everyone looks forward to their checks and program changes every year.
The COLA increase from 2024 to 2025 is 3.2% more than the increase this year. For people who are on fixed incomes, though, any extra money is a welcome boost.
Remember that if you need help making a plan for your retirement income, you might want to hire a financial advisor.
1. The maximum taxable earnings will increase
When it came to 2024, the most money that Social Security could tax was $168,600. As a result, workers who put money into the system have to pay taxes on their earnings up to this limit, usually at a rate of 6.2%.
This is because more of an employee’s income will be taxed when the maximum wage goes up to USD 176,100 in 2025. This change came about because average wages in the US have gone up.
2. Beneficiaries should expect a maximum Social Security payment in 2025
For a worker who retires at full retirement age, the most they can get from Social Security will go up from $3,822 in 2024 to $4,018 in 2025. People born after 1960 who retire at full retirement age (FRA) or when they turn 67 are subject to this limit.
People who retire before the full retirement age get less money in benefits, so their maximum benefit will be less. People who retire after the full retirement age can get the most out of their benefits, though, by putting off retirement.
3. The 2025 cost of living adjustment (COLA) increase will impact monthly payments
The SSA says that starting in January 2025, everyone who gets Social Security will get a 2.5% raise. The average benefit for retirement will go up from $1,927 to $1,976.
The expected pay for a pair will go up from $3,014 to $3,089 if both partners do well. Since 1975, the Consumer Price Index for Urban Wages and Clerical Workers (CPI-W) has been linked to COLA changes by the Social Security Administration.
The SSA looks at the difference between the CPI-W for the third quarter of this year and the third quarter of last year to find the COLA. Then, the percentage change in the CPI-W from one year to the next is used to change the COLA.
4. The average benefit for spouses and disabled workers is also increasing
All people, including widows, widowers, and disabled people, will get more money in benefits in 2025. Keep in mind, though, that payments will be different for each beneficiary because of their own unique situation. You need to know about these payments:
- According to the Social Security Administration, the average widowed mother with two children will experience an increase of $3,669 to $3,761.
- Aged widows and widowers living alone will see their payments rise from $1,788 to $1,832.
- The payment for a disabled worker with a spouse and one or more children will rise from $2,757 to $2,826.
5. Social Security will adjust the earnings test limit
If you get Social Security benefits before you reach full retirement age, your payments may go down if your earnings go over certain limits.
This is known as the “retirement earnings test,” and if you are still working, it could take a big chunk of your benefits. If you are retired next year, the amounts below will not be subject to the retirement earnings test:
- If you start Social Security before your full retirement age, you can earn up to $1,950 per month ($23,400 per year) in 2025 before benefits are withheld, with the maximum exempt earnings in 2024 being $1,860 per month ($22,320 per year).
- The rule applies until full retirement age, with more generous terms. Keep in mind that in 2025, you can earn up to $5,180 per month, which is around $62,000 per year, before benefits are withheld, at a rate of $1 in benefits for every $3 over the limit.
