As the year comes to a close, Social Security benefits are still a hot topic of conversation. Millions of retirees depend on the program to keep their finances stable.
The Social Security Administration (SSA) is making the changes it does every year to reflect changes in the economy. These changes will affect both people who receive benefits and people who pay into the system.
Here is a list of the most important updates and what they mean for you:
Benefits to Increase by 2.5%
A cost-of-living adjustment (COLA) of 2.5% will be made to Social Security benefits starting in January 2025. Even though this increase shows that inflation is going down, it is still much smaller than the 3.2% increase in 2024.
This means that the average retiree will get an extra $49 a month. While Medicare Part B premiums are going up by $10.30 a month, the net benefit increase is likely to be around $39.
On the plus side, economists think that inflation will continue to fall, which could make the small increase have a bigger effect.
Higher Earnings Test Limits for Working Beneficiaries
Beneficiaries who work and get Social Security will have more freedom in 2025 because the earnings test limits will be raised.
- Under Full Retirement Age: The annual limit rises to $23,400 from $22,320 in 2024. Earnings above this amount will reduce benefits by $1 for every $2 earned.
- In the Year Reaching Full Retirement Age: The limit increases to $62,160 from $59,520. Earnings above this threshold reduce benefits by $1 for every $3 earned.
- At Full Retirement Age (67 for those born in 1960 or later): No earnings limit applies, and withheld amounts are recalculated into future benefits.
Higher Taxes for High Earners
In 2025, the highest wage that will be taxed by Social Security will be $176,100, up from $168,600 in 2024. Because of this, an extra $7,500 in income will be taxed at 12.4%, which means an extra $930 will be paid in taxes.
People who get paid a salary will have to pay half of this cost; their employers will pay the other half. This increase may put a strain on people who make a lot of money, but it also raises the maximum benefit for retirees.
People who have worked for at least 35 years and wait to start getting benefits until they are 70 years old could get up to $5,108 a month in 2025, up from $4,873 a year earlier.
What This Means for Beneficiaries
The goal of these changes is to keep Social Security in line with the real world of the economy while also addressing inflation and wage growth. But the small COLA increase along with rising Medicare premiums shows that retirees on fixed incomes still face problems.
For people with high incomes, the changes make tax planning even more important. People who are getting close to retirement may want to rethink how they plan to get the most out of their benefits.
Millions of people still depend on Social Security, and knowing about these changes can help you get the most out of the program in 2025.
