Personal Finance

Three Social Security Changes to Be Ready for In 2025

Christy Bieber

Published: December 11, 2024 9:55 am

The New Year is fast approaching and it will bring big Social Security changes for both current and future retirees.  Understanding the changes that are on the way can help you prepare for the impact that new Social Security rules will have on your finances — both good and bad.

Here are some of the biggest shifts you can expect once January rolls around.

Key Points from 24/7 Wall St:

• Social Security benefits are increasing in 2025 due to a Cost of Living Adjustment.
• Current workers could owe Social Security tax on more of their income.
• Retirees can earn more money without their Social Security benefits being affected.
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

1. Retirees will get more money in their checks next year

For current retirees, the biggest change is a good one: They’re getting more money.  The Social Security Administration announced that beneficiaries will receive a 2.5% increase in their payments next year. This is called a Cost of Living Adjustment and it happens automatically in most years.

COLAs are built into Social Security because otherwise benefits would lose buying power due to inflation. When a consumer price index shows costs are going up, retirees get a benefits bump based on the year-over-year increase. This year’s COLA is actually the smallest since 2021, but it still helps seniors keep pace with rising prices.

Unfortunately, retirees will not see exactly 2.5% more in their checks. Medicare premiums are typically withdrawn from Social Security, and they are increasing by $10.30 to $185.00 for most enrollees in Part B next year, up from $174.70 in 2024.  Still, seniors who have been coping with surging prices in the post-pandemic era will be happy for a little extra money next year.

2. Current workers may pay more Social Security taxes

The news for future retirees isn’t as good. Some workers will be paying more Social Security checks in 2025. That’s thanks to an increase in the maximum taxable earnings.

Each year, Social Security sets a limit on the income subject to Social Security tax. This limit exists because benefits are based on a percentage of taxable earnings. Without it, high earners would receive tens of thousands of dollars in Social Security income each month. To stop that from happening, workers are only taxed on income up to the “wage base limit,” and only income up to that level counts in the benefits calculation.

The maximum taxable earnings were $168,600 in 2024 but that number is increasing to $176,100. This limit applies only to the 6.2% in taxes collected for Social Security, there’s no limit on Medicare taxes. The increase means that workers who earn above $168,600 could pay as much as $465 more in Social Security taxes (or double that amount if they’re self-employed since employers also pay a 6.2% tax on earnings).

The upside is that their future benefits will also be bigger because of the extra tax they’re paying.

3. Retirees can work more without affecting their benefits

Finally, the last big change affects retirees who are working while collecting benefits but who have not yet reached full retirement age (FRA). These workers begin to forfeit some of their Social Security once they earn too much — but the definition of “too much” is changing next year.

Specifically:

• In 2024, if you won’t reach FRA all year, you’re allowed to earn up to $1,860 per month or $22,320 per year before losing benefits at a rate of $1 for every extra $2 earned. In 2025, you’ll be allowed to earn up to $1,950 per month or $23,400 annually before you lose any benefits.
• For those who will reach FRA during the year, the 2024 limit was $4,960 per month or $59,520 annually and that amount is increasing to $5,180 monthly and $62,160 per year. Once you exceed these thresholds, you lose $1 for every $3 extra earned.

This is good news for seniors hoping to double dip and get both their benefits and Social Security.

Ultimately, retirees will likely be richer due to the Social Security changes, while some high earners will pay more but get rewarded later. Start preparing for these positive changes now to use the extra funds wisely once 2025 arrives.