3 Key Social Security Changes Retirees Should Be Aware of in 2025

Millions of Americans rely on Social Security to help them stay above the poverty line. However, the average monthly retirement benefit of $1,975 (as of December) may not seem substantial.

That’s about $23,700 annually. While it helps many retirees stay afloat, it’s not a large sum to live comfortably on.

Fortunately, Social Security benefits undergo annual adjustments, including nearly regular increases to help people keep pace with rising costs.

There are also steps you can take to maximize your benefits for the future. Let’s dive deeper into the key changes happening in 2025.

1. COLA Adjustments for 2025: A Modest Increase in Benefits

The Cost-of-Living Adjustment (COLA) for 2025 is a noteworthy change in Social Security, though not particularly dramatic.

For 2025, the COLA increase will be 2.5%, effective in December 2024. So, if your monthly benefit is $2,000, it will rise to $2,050.

While a 2.5% increase might seem small, it reflects a relatively low inflation rate.

Keep in mind that COLAs are intended to help retirees keep up with inflation, and lower increases typically coincide with low inflation. Here’s a look at some of the past COLA figures:

Year	COLA
2020	1.6%
2021	1.3%
2022	5.9%
2023	8.7%
2024	3.2%
2025	2.5%

Although 2.5% is a modest increase, it has left many retirees feeling unsatisfied. According to a recent Motley Fool survey, 54% of retirees felt that the COLA adjustment wasn’t enough to keep up with their living expenses.

2. Higher Earners Will Contribute More to Social Security

A little-known fact is that Social Security contributions are capped for higher earners. While most people pay a 6.2% Social Security tax on their entire salary (with an equal contribution from their employer), high earners only pay taxes on a portion of their wages.

In 2024, the taxable wage cap was $168,600, and for 2025, this will rise to $176,100. For instance, if someone earns $3,176,100, only $176,100 of their income will be subject to Social Security taxes, with the remaining $3 million exempt.

Many believe this cap is unfair, especially considering Social Security‘s projected funding shortfall. There are suggestions to either raise the cap significantly or eliminate it entirely as a way to strengthen the program.

3. Higher Thresholds for the Retirement Earnings Test

If you choose to claim Social Security benefits early—starting at age 62—you may also want to understand the retirement earnings test.

If you continue working while collecting benefits, your Social Security payments could be reduced based on your earnings.

Here’s a quick summary of how it works:

• If you claim benefits before your Full Retirement Age (FRA), you can earn up to $23,400 in 2025 without a reduction. However, if your earnings exceed this limit, your benefits will be reduced by $1 for every $2 over the threshold.
• If you claim benefits in the year you reach FRA, the limit is raised to $62,160 in 2025, with a reduction of $1 for every $3 over the limit.

Here’s a breakdown:

FRA Status	Income Limit for 2024	Income Limit for 2025	Benefit Reduction
Below FRA	$22,320	$23,400	$1 for every $2 over the limit
Reaching FRA in 2025	$59,520	$62,160	$1 for every $3 over the limit

While you may face a reduction in benefits for earning over the threshold, the good news is that these withheld benefits are not lost.

They will be factored into your future payments once you reach your Full Retirement Age, effectively increasing your benefits later.

Additional Key Updates for 2025

As Social Security continues to evolve, these updates are vital to staying informed and maximizing your retirement benefits.

For instance, while some people may be disappointed by the COLA increase in 2025, understanding the nuances of tax contributions, income thresholds, and the retirement earnings test can provide more opportunities to enhance your financial future.

Furthermore, there’s ongoing debate regarding Social Security‘s sustainability. Given the projected funding shortfall within the next decade, changes to the earnings cap or even the retirement age could occur. Stay updated on any developments, as they may impact your retirement planning.

The $22,924 Social Security Bonus: A Hidden Opportunity

Did you know that many retirees overlook a potential $22,924 bonus from Social Security? This bonus can significantly boost your retirement income, especially if you’re behind on saving for retirement.

By learning about little-known Social Security strategies, you could maximize your benefits and enjoy more financial security.

To discover more about these strategies, click here to explore how you can increase your Social Security benefits by a substantial amount.

In conclusion, while Social Security benefits are not enough to provide total financial freedom for many retirees, understanding the key changes and planning your benefits accordingly can help improve your financial outlook.

Staying informed about updates to COLA, earnings caps, and the retirement earnings test will ensure that you make the most out of your Social Security.

FAQs

What is the COLA for 2025?

The COLA (Cost-of-Living Adjustment) for 2025 is 2.5%, which will result in an increase in Social Security benefits for retirees.

How much is the income limit for the retirement earnings test in 2025?

In 2025, the income limit for those below Full Retirement Age (FRA) is $23,400, and for those reaching FRA, it is $62,160.

What is the earnings cap for Social Security taxes in 2025?

The earnings cap for Social Security taxes in 2025 will be $176,100. Earnings above this amount will not be subject to Social Security taxes.