With 2025 quickly approaching, it’s important to know what to expect from a personal finance perspective once the new year begins. Although there are no major policy changes regarding Social Security, there are still some important changes that both retirees and workers should be aware of.
Each year, there are some changes that are based on inflation and some that depend on wage growth. Here’s how these changes could affect your current and future Social Security benefits, taxes withheld from your paycheck, and more.
cola in 2025
Perhaps the biggest change coming to Social Security in 2025 is the annual cost of living adjustment (COLA). It’s true that inflation has calmed down quite a bit, and as a result, the COLA that takes effect in 2025 won’t be as large of an increase as it has been in years past.
However, Social Security recipients will continue to receive a 2.5% increase in 2025. Technically, this will take effect with your December 2024 payment, but since Social Security is paid on a one-month lag, it will first be reflected in the payment you receive in January 2025. For context, this means that a retired worker with a roughly average monthly salary of $1,900 would receive a raise of about $48 per month. 2025.
largest social security benefit
The maximum amount of Social Security benefits a person retiring at full retirement age in 2024 can receive is $3,822. The 2025 cap will be more than $4,018 per month, or $48,000 per year, because the way Social Security is calculated and how past years’ income is indexed for inflation has been adjusted for inflation.
Those waiting to claim Social Security could receive even more. In 2025, the maximum benefit a person retiring at age 70 can receive is $5,108 per month, resulting in an inflation-adjusted retirement income of approximately $61,300 per year.
Details: Social Security COLA shrinks to 2.5% in 2025, smallest increase since 2021
Maximum taxable income
The following Social Security changes apply to current workers: There is a cap on the amount of earned income that is subject to Social Security tax each year. And unlike COLA and other adjustments, this one is based on wage growth, not inflation.
In 2025, the maximum Social Security taxable income, officially known as the contribution and benefit base, will rise to $176,100. Income up to this amount is subject to Social Security tax, which is 6.2% for the employee and his or her employer.
Earnings tests will be more generous
If you receive Social Security benefits and have not yet reached full retirement age, some or all of your benefits may be withheld if you earn more than a certain amount.
In 2025, the means-tested limit for those who reach full retirement age after the end of the year will be $1,950 per month, up from $1,860 in 2024. For income above that threshold, $1 in benefits will be deducted for every $2 in excess. earned income.
If you reach FRA in 2025, your monthly limit will go from $4,960 to $5,180, and only the months before your birth month count. Above this threshold, a benefit of $1 is deducted for every $3 of excess profits.
Will we see even bigger changes after 2025?
As you can see, the changes to Social Security in 2025 are all about inflation and wage increases, not actual law or policy changes. However, it is quite possible that we will see significant changes after 2025. First, Social Security is expected to run out of funding in 2034 unless changes are made. And keep in mind that the next president has different ideas about Social Security than his predecessor. So there is no doubt that we will see real changes in Social Security in the coming years.
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