As of 2024, almost 68 million Americans are getting money from Social Security. Over 51 million of those people were retired. 12 percent of men and 15 percent of women depend on Social Security payments for at least 90% of their monthly income.
For people 65 and older, the program is a major source of income. The rules for Social Security have changed every year, even though it has been in place for almost 100 years. Here are five big changes that will happen in 2025.
Social Security has confirmed 5 important changes that will impact Social Security benefits in January
Beneficiaries will receive an extra 2.5% increase due to the cost of living adjustment for 2025
The cost-of-living adjustment (COLA), which is tied to inflation and changes every year, will cause Social Security benefits to rise by 2.5% in 2025.
Because inflation was lower in 2024 than in previous years, Social Security benefits will go up by a small amount in 2025. The average monthly retirement benefit will go up from $1,927 to $1,976 after this change takes effect.
But the 2025 COLA might only help people who are retired. It is not just that the rise is not very big. The reason for this is that the program’s annual increases often do not cover the costs that seniors face. The Senior Citizens League says that in the last 33 years, American beneficiaries’ ability to buy things has gone down by about 36%.
Americans will see a new taxable earnings limit of $176,100
People who work pay a separate payroll tax that helps pay for Social Security. Federal and state taxes are based on all income, but Social Security taxes are based on a set amount of income that is taxed every year.
In 2025, workers must pay $176,100 in Social Security taxes on their first $176,100. In 2024, they had to pay $168,000 in taxes. People who work for themselves pay all of their taxes, but salaried workers and their employers split the tax burden evenly.
People who might have to pay more in taxes next year might be able to ease their burden by putting more money into a conventional IRA. This way, they can keep more of their income tax-free.
Social Security confirmed the rise in earnings test exemption amounts
Recent data from T. Rowe Price’s Retirement Savings and Spending research show that about 20% of current retirees are still working in some way. Also, 48% of working retirees keep working to make money, and 45% do it for social and emotional reasons. But people in this situation who have not yet reached full retirement age are still subject to the earnings test.
For 2024, the exemption from the earnings test will be $22,320. For 2025, it will be $23,400. People who get Social Security benefits can work up to $23,400 a year without losing their benefits.
After that, the SSA will take away one dollar for every two dollars in Social Security benefits that person earns. Still, seniors who retire later in 2025 will have a better chance of getting an exemption from the earnings test.
This way, someone can make up to $62,160, which is more than the $59,520 in 2024, and still get Social Security benefits. At that point, Social Security benefits are cut by $1 for every $3 earned. When the participants reach full retirement age, they will get back the benefits that were withheld.
Beneficiaries who reach full retirement age will earn up to $3,918
The Social Security Administration can only tax a certain amount of income each year to keep the program going, so it can only give a certain amount back to beneficiaries. Social Security will pay out a maximum of $4,018 a month when people reach full retirement age in 2025. This is up from $3,822 a month in 2024.
People who get a pension do not have to take the program’s highest monthly payment when they reach full retirement age. If you delay your Social Security benefits, you might be able to build up delayed retirement credits until you turn 70. Because of this, benefits can go up by 8% every year, which means that in 2025, it is possible to get almost $4,018 a month.
A greater income threshold for work credits
People who reach a certain age do not automatically get Social Security benefits. Instead, people get benefits from paying taxes on their wages and getting credits for it.
The SSA lets workers get up to four credits a year, which would fully cover them under the program. Some credits may earn different amounts of money over time, though.
From now until 2025, one labor credit will earn you $1,810, up from $1,730 now. So, part-time workers who want to get their four credits for the year should keep track of how much they make.