Personal Finance

Forget COLA: This Is the Social Security Number Retirees Need to Know

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For much of the year, more Social Security beneficiaries focus on the cost-of-living adjustment (COLA). The COLA directly impacts retirees’ monthly benefits, increasing payouts to counter inflation. But for those aiming to maximize their Social Security income long-term, there’s another crucial number to know: the wage base limit.

In 2024, Social Security set this limit at $176,100, up from $168,600 in 2024. 

What does this mean? And what should you do about it? That’s exactly what we’ll look at below. 

What is the Wage Base Limit?

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The wage base limit changes every year.

The wage base limit is the maximum annual income subject to Social Security payroll taxes. If you work in the U.S., you pay 12.4% of your income into Social Security. This amount is split between employees and employers in most cases. 

However, this percentage only applies up to the wage base limit. After that, any extra income isn’t taxed for Social Security. In other words, it’s the upper limit. 

For high earners, this means that they’ll only pay into Social Security on income up to $176,100 in 2025. Any amount they make above that won’t impact their Social Security taxes. 

This might not sound like a big deal, but it can have a big impact on how much Social Security you’ll receive in retirement. If you want to maximize your Social Security benefits, you need to know this number. 

How the Wage Base Limit Impacts Social Security Benefits

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The wage base limit has a direct impact on your retirement benefits.

While the wage base limit impacts how much you pay in Social Security taxes, it also influences the monthly benefit you’ll receive once you claim Social Security.

In another article, we dive into how Social Security works in-depth. However, the short of it is that Social Security benefits are calculated based on a worker’s 35 highest-earning years. To qualify for the maximum benefit, you must earn at least the wage base limit for 35 years. 

If you do not hit the base wage limit for 35 of your working years, you won’t receive maximum Social Security benefits when you retire. 

It doesn’t matter if you earn a million dollars for 34 years and then below the wage base limit for all the other years. You’d still receive less than the maximum benefits because you did not hit that limit for 35 years. 

How Is the Wage Base Limit Set?

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The wage base limit is based on the average wage in America.

Each year, the Social Security Administration changes the wage base limit based on the National Average Wage Index. Simply put, as wages go up, this limit goes up, too. 

Because wages have steadily gone up, the wage base limit has slowly gone up, too. Here’s a quick look at the last four years:

Year Wage Base Limit
2025 $176,100
2024 $168,600
2023 $160,200
2022 $147,000

These adjustments will continue into the future. If you want to maximize your Social Security benefits, you need to reach the wage base limit each year.

How the Wage Base Limit Impacts Your Finances

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The wage base limit impacts your taxes each year.

When you’re looking at your finances, you need to consider the current wage base limit. For instance, you’ll need to consider:

  • Tax Planning: Higher earners need to pay attention to the wage base limit when considering their taxes. Any income that is over this limit won’t be taxed for Social Security, impacting your take-home pay. 
  • Eligibility for Maximum Benefit: If you’re aiming to receive the maximum monthly benefit, you’ll need to consistently earn at or above the wage base limit for 35 years. 
  • Timing Your Claim: You may want to work an extra year or two to ensure you’re hitting this limit. If your income increases in the last few years before your retirement, working for a few extra years may make sense. 

Leveraging Social Security

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To make the most of your benefits, make sure you’re staying up-to-date on annual Social Security changes like the wage base limit.

Social Security can be a bit complicated. It has tons of rules, and many of the numbers impacting benefits change each year. However, if you want to maximize your potential benefits, it’s important to keep up with all these changes. 

For instance, you may want to consider asking for a salary that matches the wage base limit, especially if you’re only a few thousand dollars below it. While a few extra hundred dollars a month may not make a huge difference now, it can make a big difference when you hit retirement. 

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