With 2025 coming ever closer, it is essential to remain abreast of changes in personal finances, especially those regarding Social Security. While no sweeping changes in federal policy generally have occurred, a few items have emerged that will change retiree-workers. These changes, made due to inflation and wage growth, touch on social security benefits, payroll taxes, and others. Here is what one can expect.
Read more: Social Security Calculator: How much Social Security will I get if I make $100,000 a year?
The 2025 cost-of-living adjustment (COLA)
One change that will occur to Social Security in 2025 is that there will be an annual Cost Of Living Adjustment (COLA). In general, inflation has decreased in recent years, so the increase of the 2025 COLA is not so high compared to previous years. From the December payment in 2024, beneficiaries will notice a 2.5% increase in benefits, which most recipients will see in their January check of 2025.
For reference, a retired worker, who would receive an average monthly benefit of $1,900 during 2024, would enjoy an increase of about $48 per month in 2025. Though not as impressive as some previous increases, this is a meaningful amount to alleviate increasing expenses in this economy.
Maximum Social Security benefits in 2025
Retirees who qualify for the maximum Social Security benefit will also see an increase in 2025.
- At Full Retirement Age (FRA): The maximum monthly benefit will rise to $4,018, up from $3,822 in 2024. This amounts to over $48,000 annually.
- At Age 70: For those who delay claiming benefits until age 70, the maximum monthly benefit will increase to $5,108, translating to nearly $61,300 annually in inflation-adjusted retirement income.
These adjustments ensure that Social Security remains a robust financial foundation for retirees, particularly those who delay their claims to maximize benefits.
Taxable maximum earnings for workers
An increment in the ceiling for taxable earnings in 2025 has been approved for workers covered under the Social Security Act. The highest practicable amount of earned income considered by the Social Security tax will increase from $160,200 in 2024 to $176,100 for the year 2025. It is meaningful that all these earnings will be liable to the 6.2% Social Security tax by employees and employers.
This is coupled with the growth in wages rather than inflation so that the system continues to trend with broader economic trends.
Changes to the earnings test limits
For those collecting Social Security benefits before reaching full retirement age (FRA), the earnings test limits are becoming more generous in 2025. These limits determine how much income you can earn before benefits are partially withheld:
- For those reaching FRA after 2025: The monthly earnings limit will increase to $1,950, up from $1,860 in 2024. Beyond this threshold, $1 in benefits will be withheld for every $2 earned over the limit.
- For those reaching FRA during 2025: The monthly limit will rise to $5,180, up from $4,960. Only earnings from months before your FRA count toward this limit, with $1 in benefits withheld for every $3 earned above the cap.
These adjustments make it easier for beneficiaries to supplement their income while still receiving some Social Security benefits.
Looking ahead: Potential changes beyond 2025
Some changes are tied to inflation and wage growth in 2025—and even bigger changes that are probably going to happen sometime in the future about Social Security. Some estimates now forecast a funding crisis in the program by the year 2034 unless legislative action is taken to find a solution; the president-elect’s viewpoint on Social Security-related matters might also be radically different from the predecessor’s, thus opening doors for changes that might bring about major policy changes.
Changes in the future may spend a long time on solvency correction and adjustment to current realities beyond those of changing economies and populations. For now, it remains imperative to keep track of updates annually on the program for making prudent financial choices.
Final thoughts
Understand the changes in Social Security for the sake of better benefits and planning for future expenses; you are one of those who have been on the receiving end of COLA increases, and now you are told of higher taxable earnings and more generous earnings test limits—this is what you get in 2025, among other important news for either worker or retiree. Such measures, besides being incremental, will also require much vigilance for any changes in policies that may come up in the years ahead.
